Regional Policy in the Process of Integration

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CIAO DATE: 6/99

Regional Policy in the Process of Integration Into the European Union

Aleko Djildjov and Vasil Marinov

EastWest Institute

Preface

Regional development is a topic that has recently acquired political importance due to the necessity for its legislative regulation.

There are different possible approaches to solving this problem. Considering its extreme complexity, and especially the lack of relevant practices in market economic conditions and in a democratic decision-making process, one of the possible solutions is the study and analysis, of the experience of other countries. If relevant, these experiences in countries which have already institutionalized regional development can be promoted. Although the experience of the countries in the EU, of which Bulgaria aspires to become a member, is important, it is even more important to study the current experience of countries in which conditions are closer to those in Bulgaria.

The study of this experience was conducted within the Parliamentary Democracy Project, funded by the Phare Democracy programme and the C.S. Mott Foundation, and implemented in cooperation between the Prague Centre of the EastWest Institute and the Foundation for Local Government Reform in Bulgaria.

The method of comparative analysis was used in the survey. On the basis of official documents and printed sources, and to a lesser extent of personal interviews, the basic elements of regional policy in the different countries have been followed and compared. Although this is not clearly expressed in the sections on the countries, significant attention was given to the so-called contextual factors - political and economic development, respectively the level of progress of transition for the countries from Central and Eastern Europe (CEE), administrative and territorial division, area of the country, type and manifestation rate of regional differences, type of neighboring countries (more specifically, common borders with EU countries), etc., without which it is impossible to explain and understand the differences in existing institutional structures, approaches, goals, etc.

Due to its great importance and specific application of results in Bulgaria, special attention was paid to one of the main motivating factors for the institutionalization of regional development in the CEE countries - the process of accession to the EU and the related requirements. In particular, requirements related to the participation in the EU’s regional policy and the opportunities for using the structural funds and their corresponding instruments during the pre-accession period.

It was impossible to cover a great number of countries during the short term of the survey. The selection of countries was based on our desire to include countries with different conditions in economic, social and geographic context, a different level of progress and different approaches in regional development policy. At the same time, we focused on the countries from Central and Eastern Europe whose communist period legacy makes for similar problems in regional development. Finland was included as a country that became a European Union member recently (1995). When selecting the countries, we also considered the access to information on the problem in which we were interested, which in some cases has impact on the differences in content and completeness of the regional development policy review.

The survey is oriented towards the formulation of regional development policy in Bulgaria, but does not aim at making specific recommendations on its separate elements. There are different approaches to regional development policy; it is very difficult to evaluate their efficiency, especially as this is a "young" policy that is now making its first steps and has limited experience. As a result, the goal of the survey is to establish the basis for an "informed" discussion and the generation of ideas on this problem by presenting the major elements of regional development policies in other countries. We believe that this discussion will assist the review and enactment of the Bulgarian regional development legislation by the National Assembly.

Comparative Analysis

The survey covers 6 countries - Hungary, the Czech Republic, Finland, Estonia, Romania and Poland. The comparative review of their modern regional development policies, presented in a table, outlines the following conclusions.

Currently, there is no doubt whatsoever about the necessity for active regional development policy in any of the countries surveyed. For the countries from the former East Bloc, however, this is a relatively new event. In the beginning of the 90s, during the period of implementation of basic economic and political reforms, this necessity had a secondary, marginal importance. It became more important during the second half of the 90s, under the influence of several factors: increasing regional differences during the transition period; the aspiration towards EU accession (and the respective requirements with regard to regional development) and the basic completion (or at least the progress) of macroeconomic reforms. In its report, the European Bank for Reconstruction and Development states that the transition period enters a new stage. If during the first stage the dominating processes were liberalization, privatization and achieving macroeconomic stability, now the focus is shifted towards the challenge "to establish and strengthen the institutions, policies and practices which are the basis of a well-functioning market economy and the investments which provide growth" (Transition Report, 1997). The regional development policy is one of the important elements in this transition from liberalization and stabilization to restructuring and growth. Therefore, the major problem is not whether there is a need for regional policy, but what type of policy would be most appropriate for the respective country, with regard to its goals, resources, institutional framework and instruments.

The need for regional development policy in all surveyed countries is determined by the existing and growing regional differences, regardless of the reasons for this. Regional differences (disproportions), however, present a category that is too relative - a fact that shows in such comparative reviews. Some of the countries are characterized by extremely high concentration of social and economic development in the regions of their capitals (Hungary, Estonia), in some cases due to the influence of extreme geographic conditions (Finland), while in other countries the regional differences can be evaluated as moderate (Poland and Romania).

The aspiration to EU accession is a significant factor for regional development policy. As can be seen from Finland’s experience, even countries with established regional development policy accession must make significant changes to make it consistent with the EU policy.

During the period of its formulation or change, regional development policy faces two types of problems - of content (the problems of regional development) and institutional (the problems of the policy itself). There are significant differences in the approaches that the different countries use in solving these problems.

The legislative regulation of regional development policy is different in the different countries, both in terms of the existence of a special act on regional development and in terms of its content and in detail. Finland had a regional development act which precedes its accession to the EU (of 1993) and which replaced the previous Regions for Development Act of 1966. Among the countries in transition, the earliest and, according to most evaluations, the fullest, legislative regulation of regional development and physical planning is that of Hungary (Regional Development and Physical Planning Act of 1996). Actually, the special legislation on regional development in Hungary was initiated even earlier, in 1992, by the Regional Development Fund Act. The Romanian act was approved by the House of Representatives in 1998, and the Czech one is in development and should be submitted to Parliament in mid-1999. In Poland, there is a discussion whether a special act is necessary and its adoption was delayed because of delays in the administrative-and-territorial reform to which the act is related. Estonia has no special act on regional development and it is not considered necessary, as the financial stimulation issues are regulated by other acts and the rest of the issues are regulated by non-parliamentary acts. As far as the content of the acts is concerned, the Hungarian is the most detailed one (it contains full definitions of specific terms) and is particular with the fact that it is related also to the problems of physical planning. The Finnish and Romanian acts are more general, and the latter is seriously criticized for treating only the regional development institutions, but not its instruments and the rules for its implementation.

The Hungarian experience shows that the adoption of a regional development act is very important, not only because it would establish clear and sustainable rules and long-term benchmarks, but at least because it would end the long-lasting discussions on its necessity and would focus the attention on the actual formulation of regional development policy. On the other hand, it is important to underline that the regional development act does not regulate everything and does not solve all problems immediately. As can be seen from the Hungarian experience, and especially from the criticism aimed at the established institutional framework, for the countries in transition the act is only the beginning of the process. The act is the basis for development of a system of non-parliamentary acts and for harmonization of the existing legislation.Of great importance is also the preparedness of the institutions that will be responsible for the implementation of the act. This is why in many cases the experts consider the expectations related to the adoption of the respective act (e.g., in Romania and the Czech Republic) as too high.

In some countries the lack of an act is compensated by relatively detailed regional political concepts (“Principles”). In Estonia this document has been discussed in the Parliament and has a key role in the development and the implementation of the regional development policy. In the Czech Republic, the “Principles” are seen only as a temporary substitute of the act, and as a document that would unify the opinion of the government and the state administration and would become a prerequisite and reference point for further more purposeful and planned work on the legislation. Similar is the approach in Romania, where the development of the so-called “Green Paper” creates favorable prerequisites for the development of the regional development act in the future.

. One of the key, and often discussed, issues of regional development policy is the one related to its goals. In this regard, it is typical that the reduction of interregional differences (balanced development) is a goal of the policy in all countries, regardless of certain differences in its formulation. An exact interpretation, defined by a preceding political discussion, is given in “Regional Policy Principles in the Czech Republic”, according to which balanced development means “proportional, crisis-free development and utilization of the existing potential of the regions, creation of equal opportunities, and not of “equal development”. Also a typical goal, although not in all countries, is to provide conditions for independent development of the regions, to stimulate the regions’ potential, to stimulate the local and regional initiative. An exception to this is Estonia, where this goal is not included in the policy but is substituted by “consistency of national and local interests”. Some more particular goals can be seen in the Czech Republic (EU integration and access to the structural funds), Hungary (development of market economy in every region, as well as sustainable and harmonious development of the spatial and settlements structure), and especially in Poland, where a special attention is paid to increasing the efficiency and competitiveness of the regions and of the national economy as a whole ₁ . This poses the question of the priorities and the ration between the goal for economic growth of the whole national economy and the goal for reduction of inter-regional differences. According to many evaluations, mainly of foreign experts, the problem of the countries in transition, including in relation to their accession to the EU, is not existence of great inter-regional differences but that they are lagging in their development compared to the EU average. Furthermore, at the moment of the accession their whole territory will be treated under goal 1 of the structural funds (regions lagging in their development).

A successful division between long-term and short-term goals of the regional development policy has been made in Estonia. It is related to a great extent to the possibilities for achieving these goals. If the long-term goal is to provide a stable living standard, quality of life and basic services to the whole population, then the short-term goal would be to establish prerequisites for development and to effectively utilize the local potential in all regions, in order to achieve long-lasting competitiveness and sustainable economic growth.

In many cases, within the acts or in the regional political concepts are formulated also principles of the regional development policy, as a supplement to the identified goals. As a whole, the set of goals, principles and tasks is similar, but different and ambiguous terms are used to express them, which makes both the process of identifying the goals and their interpretation difficult.

In all countries except Poland, there are existing and clearly defined impact regions (regions that are subject of the regional policy) and regions for management of regional development. This distinction is especially explicit in the Czech “Principles”. The impact regions are the main subject of direct state intervention and are defined on the basis of special criteria under a specific procedure, while the regions for management are not subject to direct state intervention and generally have their own regional policy.

There are two basic models in the formation of regions for management - the use of existing administrative-and-territorial units as regions for management (Estonia, the Czech Republic after it establishes such units in the year 2000), or voluntary formation of regions, exclusively for the purposes of regional development, from smaller administrative-and-territorial units, on the basis of an agreement (Finland, Romania). Hungary uses a combination of both models; the first one is commonly used, while the second one is applied in those cases when there is a need for formation, respectively coordinated governance, of a territorial unit that covers several counties or parts of them. Besides regions for management, some of the countries, in order to establish conditions for the structural funds, form statistical or plan macroregions (with no institutional basis) which are used only for statistical needs and for the development of regional programs, so as to correspond to level NUTS II of Eurostat (Hungary, the Czech Republic). Similar intentions n Estonia are subject to strong criticism, as it is considered irrational to assign the responsibility for regional development to undefined units with no institutional framework and without relatively independent regional authorities (Jaanson, 1998). In regard to the evaluation of Romanian regional policy, it is said that “the formation of macroregions specifically for the purposes of the future European integration can be overstated because of the high cost” and that this issue can be delayed until the moment of the actual accession (Regional Problems and Policies..., 1997). Doubt is expressed also in regard to the voluntary formation of regions for management, which is, to say the least, a lengthy process full of a number of contradictions (a typical example is Hungary, where this part of the act practically does not work).

The type of impact regions varies significantly in the different countries, including the method and competencies of their announcement. In Romania and Estonia, there is only one type of impact region (unfavored zones and regions for development, respectively). More often there is a more differentiated system of regions, with most of them corresponding to the target regions of the EU structural funds (Poland, the Czech Republic, Hungary, Finland). Three of the countries do not limit their regions to the goals of the structural funds but also introduce other types of impact regions. The Czech Republic has additional regions for cross-border cooperation; in Hungary there are regions with specific natural and geographic features (requiring the use of the territory with regard to its protection by the means of physical planning). Finland actually has two overlapping, but not identical, systems of impact regions - for implementation of the national regional policy, and for the implementation of the EU regional policy, which provides coverage for the greater part of population and the territory.

The announcement of the impact regions is also regulated differently in the different countries. In some cases it is done by the Parliament (high priority regions in Hungary), by the national government on the basis of criteria adopted by it (Hungary, Finland, Estonia, and Romania), or on the basis of criteria stipulated in the act (this method will be used in the Czech Republic). In Poland the problem regions are also announced by the national government, but there is no clear procedure for this.

The institutional structure of regional development is marked by a great variety. The Czech Republic has a Ministry of Regional Development that is evaluated as too weak and still isn’t well established. In Finland and Estonia the competent ministry is the Ministry of the Interior; Estonia has a minister without portfolio who reports directly to the Prime Minister. In Poland the competent ministry is the Ministry of the Economy. Romania has no specialized ministry and regional development is governed by the Council on Reform within the Council of Ministers.

The existence and the type of the competent ministry influence the existence, type and competencies of supporting bodies, such as advisory and coordinating councils. There is no such body in the Czech Republic, as there are clear principles of coordination and it is within the competence of the Ministry of Regional Development. Hungary, Estonia and Finland have councils that have exclusively advisory or coordinating functions, while in Romania the legislation provides for a National Council for Regional Development chaired by the Prime minister and with wider competencies and the right to make decisions on important issues (adoption of the national strategy and program, adoption of the criteria, priorities and procedures for distribution of the funds of the National Fund for Regional Development, etc). Members of the council are representatives of the ministries and of the competent bodies at regional level; in Hungary, however, members of the council are also representatives of the economic and social partners and of the national economic chambers.

In four of the countries (except Finland and Estonia), there is, or will be, a national agency for regional development (under a different name in the different countries), as an executive agency that assists the respective ministry in its activities (Hungary, the Czech Republic) or national council (Romania), or as a relatively independent institution (Poland). The agencies’ most important function is to implement the regional development programs and to manage the funds (besides performing also information, analytical and program functions).

The same variety can be seen also in regard to the competent bodies on regional development at the regional level, which is strongly influenced by the existing administrative-and-territorial structure and the level of decentralization of government. A serious problem faced by most of the surveyed countries, is finding or even creating real partners at the regional level. This is closely related both to the general principle of the European regional policy for partnership and with the more formal requirements of the European Commission for consulting the regional programs with partners from the regions. The problem has two sides - the existence (or the need for formation) of relatively large territorial units (NUTS II) and the existence of partnering (and not subordinated) institutions at this level. The reason for this problem is the partial implementation of the administrative-and-territorial reform in these countries and the limitation of self-government to municipal level or within relatively small territorial units that are unsuitable for implementation of regional policy and for formulation and implementation of regional development programs. Depending on specific conditions, and probably under the influence of the foreign experience and consulting used, the countries take different approaches to the formation of region-partners. In Poland and Estonia, bodies on regional development are the administrative governors (with very limited functions in Poland); in the Czech Republic these will be the bodies of the regional self-government (after they are formed in the year 2000). In Hungary there are both county and regional (at higher level) councils which are legal persons and are able to sign agreements with other participants in the regional development programs. The existence of a representative of the minister is typical (and of other ministers, upon request), providing the possibility to coordinate national and regional interests, despite the great freedom of the councils. In Romania and Finland, the regional councils are formed by the lower-level body (counties and municipalities, respectively).

In practically all countries exist, or have been provided for, agencies for regional development at regional level. This reflects the obvious need of executive units to perform operative activities related to the planning, the chanelling of funds, the provision of services to the local businesses, etc. In Romania they have legislatively defined functions and are public non-profit organizations obligatory for the regions. In Poland and the Czech Republic, the regional development agencies are non-government organizations with participation of public institutions (e.g., the Ministry of Regional Development in the Czech Republic, municipal associations, etc.) organized as for-profit associations which do not distribute profit, or as non-profit organizations (foundations in Poland, associations in the Czech Republic). There are 17 regional centers for support of business in Estonia. The other two countries are a little bit more different. In Finland some of the functions typical for the regional development agencies are performed directly by the regional councils (which have their own administration). In Hungary will be established executive agencies at the regional and county councils, but these are either not established yet, or have a very limited human capacity and therefore, a very limited activity.

It is difficult to summarize in such a short document all the different measures and instruments of regional development policy, which are described in more detail in the review of the separate countries, but there are some common features and specific differences that can be formulated:

in some cases, the measures and instruments of regional policy are treated too widely and include sector measures and the state budget subsidies for the municipalities (specifically in Estonia and Finland)

typical for all countries, with the exception of Finland, is disperging of limited funds between a great number of programs, which questions their effect and is in a conflict with the concentration principle

we did not find a system for monitoring and evaluation of the effect from the measures of the regional development policy, except in programs funded by international institutions; the only known case of evaluation of the efficiency of the overall regional development policy is in Estonia

in all countries is used a wide specter of measures, aimed at all basic factors of regional development; due to the relatively low level of infrastructure in the countries in transition, there is a risk of domination of infrastructure investments and underestimation of the so-called “soft factors”

all countries are oriented towards a wide application of the program principle for direction of the measures in regional development policy.

Dominating funding sources of regional development policy are the state budget and the funds from EU programs, despite the aspiration to implementation of the principle of co-financing. As a whole, the national regional development policies do not have big budgets. In terms of the chanelling of funds, there are two groups of countries - those with direct funding from the budget and inclusion in the budgets of the responsible ministries and/or regional authorities, and those establishing national and regional development funds. National and regional funds have been established in Hungary and are provided for in Romania. Generally, in the surveyed countries the national policy for regional development operates with relatively limited funds (which is confirmed by the evaluations of the European Commission for the separate countries) and are generally smaller than the costs for sector policies (Regional Problems..., 1997).

An important instrument for direction of the sector departments’ funds, as well as for attracting co-financing from different participants in regional development, are the program agreements. These are used in Finland and Hungary and are provided for in the Czech Republic. In Finland, for example, the state budget funds for regional development are allocated by the budgets of the different ministries. The state, the municipalities, the companies and the other participants in regional development sign, with the leading role of the regional councils, an agreement for the projects that will be implemented, the timelines, the funding obligations, etc. In Hungary, this approach is legislatively provided for in establishing municipal associations for regional development and regional development councils. In the Czech Republic it is considered as one of the most important mechanisms for the coordination of the regional development with the sector policies.

Due to the specifics of regional policy, an important problem for its effective formulation and implementation is the coordination and integration of sector policies. The different countries have adopted different approaches to coordination and have different success. The Romanian act does not include an explicit mechanism for such coordination and evidently depends on the national and the regional councils. The approach is similar in Estonia, where coordination is considered extremely important, due to the fact that the regional policy is treated more as a set of sector policies than as an independent policy. The requirements in Hungary are more formal (defined scope of the ministers’ competencies with regard to regional development, obligatory participation of the ministries - within the limits of their competencies and budgets - in the implementation of concepts and programs for regional development; participation of the competent minister in the regional councils with the ability to contest their decisions, as well as the possibility of other ministers participating in the councils if necessary). In Finland the mechanism of coordination includes the obligation measures with significant regional impact to be coordinated with the Ministry of the Interior and the regional councils. In the Czech Republic, as opposed to Estonia, there is no interdepartmental body. There is a clear distinction between the regional and sector policies and concrete cases and mechanisms for coordination are defined.

Of the same importance to the success of the regional development policy is the partnership between the different participants, which can be also legislatively regulated, but depends to a greater extent on the existence of goodwill and established traditions. It is difficult to evaluate these partnerships without detailed and concrete observations, but the general impression is that they focus on the lower levels (regional, local) and that they are most institutionalized in Hungary and Finland. In Poland and the Czech Republic, the functioning regional development agencies are of extremely high importance to the development of partnership conditions.

Some evaluations, as well as the normative and conceptual documents, show a tendency for stronger strategic orientation in the countries in transition. It is a renaissance of planning, in contrast to its almost complete rejection in the beginning of the 90s. In most of the countries, the planning of regional development is based on strategies like a framework and longer-term document and more concrete programs. The only exception is Poland, where there are no national and regional strategies. This tendency will become even stronger in the EU accession process and the need for development of national development plans. Hungary presents a particular case: the regional development there is integrated with the physical planning (territorial division and structure) not only as a common act (even though the regulations of physical planning is general in nature) and a common ministry, but also as a close interaction of the planning processes. The planning of regional development is done as follows: national concept for regional development - regional structural plans - operative programs for regional development. Elements of a more direct relationship between regional development and territorial structures can be seen in other countries, too, although not so well expressed.

A key problem regarding the regional development policy and faced by most of the surveyed countries, is how to establish a well functioning legal, institutional and financial system to support this policy in a very short period of time, and with the lack of traditions corresponding to the changed political and economic conditions and rules,. This is why it is not surprising that most of the countries get oriented towards seeking supporting models, one of which (practically common for all the countries) is the EU regional policy. In some cases (Estonia), this aspiration has become extreme and is connected with copying a foreign model (Finland).

It is noticeable that most of the surveyed countries have implemented, or are currently implementing, special programs for support to the regional development policy, which are in the foundation of formulating a new type of policy and the development of the necessary legislation, as well as the creation of practical skills and a new way of thinking. The experience of Finland which in the year of its accession managed to make use of the structural funds, shows without any doubt that a decisive factor for this is the preparedness and knowledge of the concrete requirements of the EU which are in constant dynamics. ₂ In this respect, all countries set their hopes on the Special Preparatory Program that will start in 1998 in all accession candidate countries.

Although the EU accession and the use of the structural funds is one of the main motivating factors ₃ for the activation of the regional development policy and that all countries have made progress in meeting the respective requirements, this is a process that poses some challenges and problems (Molle, 1998):

a need for fundamental change of thinking

introduction of new rules and instruments of the structural funds of 1998, related to a great extent also to the process of expansion. (Historically, the Union’s expansion has always been connected with a change in structural policies, too).

the candidate countries focus their attention on the existing rules, but the new ones are not less important

the new requirements are related before all to the concentration, simplification and increase of efficiency and control, which pose new, higher requirements to the candidates and lessen the role of the European Commission

the potential conflict between the requirements for multi-year programming and the dynamic conditions of the candidate countries, combined with their limited administrative capacity

the choice between providing assistance for the growth areas or for the lagging regions, etc.

Molle defines clearly and succinctly the key preconditions for success:

correct application of the principles of programming, concentration and partnership as a condition for preparation of the national development plan and the related Framework for Support from the Community (an agreement for providing support from the structural funds)

formulation of an appropriate institutional framework and more specifically, solving the issues related to the coordination and the division of responsibilities, for which there is no common model

providing efficient monitoring and evaluation of the programs.

The experience of the Western European countries (although not a part of this survey) shows without doubt that the regional policy is characterized on one hand by constant dynamics, and on the other, by extreme variety. Above all in relation to its institutional organization, impact regions, instruments used, etc, which reflect the problems of regional development and their political interpretation in the respective country in a given moment. This is the case in the surveyed countries, too. Regardless of this, some common trends and peculiarities can be found in their regional development policies:

realization of the necessity of active regional development policy, regardless of the reasons
focus of attention on the regional development policy during the second stage of the transition
the strong accent on the harmonization with the EU policy and the possibilities to use the structural funds
the limited resources of the national regional policy
the tendency to decentralization
the strengthening of the positions of the strategic and the conceptual approach and the programming.

Aside from these common particularities and trends, there are also a lot of differences. Most of the surveyed countries have a similar legacy of the socialist period. These differences are related to:

the institutional formation, and especially the division of functions between the national and the regional level and the formation of the bodies for implementation of regional development policy at regional level
the type and way of defining the impact regions
the scope of interpretation of regional development and regional policy
the focus on different goals of the regional development policy.

The major factors which form the basis of the these differences, apart from which can be followed through the summarized table, are:

the level of progress in the transition towards market economy, especially in regard to the processes of liberalization, privatization, attraction of foreign investments, etc.

the inherited administrative structure, and especially the level of progress of the reform of the administrative-and-territorial structure and decentralization

the geographic context, including the level of expression of inter-regional differences, as well as the political-and-geographic position (e.g., in relation to the EU member countries)

the level of preparedness for implementation of regional development policy, including the activities under different international programs, etc.

On the other hand, the experience of the implementation of the regional policy in the EU, which is implemented under various national institutional structures, should also be taken into consideration. Also, the regional development policy in the surveyed countries (with the exception of Finland) is still in too early a stage, as under formulation, making it impossible to evaluate its effect. This allows us to make the only direct conclusion for Bulgaria: there is no ideal model of regional development policy and that it needs to be formulated and implemented in a contextual and institutional aspect by considering the specific conditions in the country at the current moment.

Table 1: Comparison Of Basic Elements Of Regional Development Policies In The Surveyed Countries

Romania Poland Czech Republic Hungary Finland Estonia

Special act on regional development Regional Development Act (adopted by the House of Representatives) no In development (June 1999), with clearly defined content and principles Regional Development and Physical Planning Act (1996) Regional Development Act (1993) none and not considered necessary

Regional political concept, principles, directions Green paper Diagnostic report and strategic concept for regional development Detailed regional political concept as basis for legislative regulation Principles of the regional policy (1991, 1994)

Competent body at national level no specialized ministry; Council on Reform with the Council of Ministers Shared responsibility of the Ministry of the Economy and the Government Center for Strategic Research (since 1998) Ministry of Local (Regional) Development Ministry of the Environment and Regional Development Ministry of the Interior, secretariat on administration and regional policy Minister of regional development (without portfolio, reporting directly to the prime-minister), Ministry of the Interior

Supporting bodies (advisory, coordinating, etc.) National Council on Regional Development (chaired by the prime-minister) Advisory Council for Regional Development and Development of Rural Areas, part of the national government (1993-1996.) none National Council on Regional Development, with advisory and coordinating functions Advisory Council on Regional Development Council on Regional Policy, with coordinating functions

National agency for regional development National agency as an executive body of the National Council Polish Agency for Regional Development National Center for Regional Development (an executive agency assisting the Ministry in its work) National Center (with the Ministry)

Members of the advisory/coordinating body

prime-minister

other ministers

chairpersons and deputy-chairpersons of regional councils

n.a.

ministries

county councils for development

the mayor of Budapest

national associations of municipalities

national economic chambers

organizations of employers and workers

n.a.

ministries

regional governors

local authorities

Romania Poland Czech Republic Hungary Finland Estonia

Regions for management of regional development regions for development (voluntary formation upon agreement between the counties) 14 self-governing administrative regions and 7 plan regions (NUTS 2) after the year 2000 7 statistical (plan) macroregions Administrative units (counties). Regions for development as a unit for management of regional development when parts of several counties are included 20 regions with special competencies, high level of decentralization of decision-making and funding Administrative units (counties)

Impact regions unfavored zones “problem regions” corresponding to the target regions of the structural funds “problem regions” corresponding to the target regions of the structural funds under goal 2 (structurally affected) and goal 5b (rural). Additionally defined regions for cross-border cooperation.

unfavored regions:

lagging (undeveloped)
with industrial restructuring

rural

with constant and high unemployment

Regions with particular natural and geographic features

National regional policy:
undeveloped subject to structural changes
Regional policy of the EU:
goal 2 (structurally affected) and goal 5b (rural), goal 6 (thinly populated) Region for development

Competent body at regional level Regional Council Bodies of regional self-government County council for regional development
Regional council Regional council
(intermunicipal body) Regional governor

Agencies for regional development at regional level Regulated by the legislation: public, non-government, non-profit organizations, obligatory in the regions for development NGOs with participation of public institutions, organized as foundations, commercial associations or corporations NGOs with participation of public institutions, organized as associations, commercial organizations or corporations (about 10) provided for in the legislation as an executive body of the councils under the act, but have limited capacity and activity Typical functions of agencies for regional development are performed by the regional councils 17 regional centers for support to businesses

Program documents national strategy
national program
regional strategy
regional program regional programs National strategy
Regional programs for the problem regions
Strategies and programs for the formal regions National concept for regional development
Regional physical plans
Operative programs Strategic plan and operative programs Strategy for regional development (in development since the beginning of 1998)
Regional programs

	Romania	Poland	Czech Republic	Hungary	Finland	Estonia
Coordination	No explicit mechanism, National and Regional Councils	limited, functions of the elated to the coordination of sector policies	Clear distinction between regional and sector policies Evaluation of the regional impact of sector measures from the National Strategy for Regional Development Provided for program agreements between the sector departments	Obligation to define the scope of ministers’ competencies in regional development Obligation for participation of the ministries in the implementation of concepts and programs for regional development Representatives of the competent minister to the county and regional councils	Obligation for coordination of measures with significant regional impact Ministry of the Interior at national level the regional councils at regional level	No explicit mechanism Council on regional policy
Partnership	Formation of Regional Councils upon agreement	strongly expressed, through the agencies for regional development	through the agencies for regional development and other associations	Strongly expressed tendency towards decentralization Formation of the regional councils and municipal associations on a voluntary basis Inclusion of economic and social partners in the management bodies of regional development Clear mechanisms for coordination of interests Program agreements	co-financing of programs program agreements committees for cooperation with representatives of the ministry, the local authorities, business, scientific institutes, etc.
Direct connection with physical planning			requirement for consistency of the physical plans functions of one and the same ministry	common act, the planning goes from national concept to physical plans and operative programs	Use of the existing bodies on physical planning at regional level

Country Profile 1: Czech Republic

Indicator Period Unit For the Country

Population 1996 10,423,000

Territory sq. km. 78,703

Population density people/km² 132,5

Unemployment 1997 % 5

Inflation 1997 % 9.5

GDP Growth 1996
1997 % 4.1
1.2

GDP 1997 US$ per capita 10,500

Percent of GDP average for EU countries 1995 % 57

Foreign investments 1990-97 bln. $ 7.4

Progress in the transition ₄ 1997 3.45

Number of regions 1998
2000 77 counties (NUTS 3)
4 self-governing regions and 6-8 plan regions (NUTS 2)

Number of municipalities 1998 1996

Indicator	Period	Unit	For the Country
Population	1996		10,423,000
Territory		sq. km.	78,703
Population density		people/km²	132,5
Unemployment	1997	%	5
Inflation	1997	%	9.5
GDP Growth	1996 1997	%	4.1 1.2
GDP	1997	US$ per capita	10,500
Percent of GDP average for EU countries	1995	%	57
Foreign investments	1990-97	bln. $	7.4
Progress in the transition ₄	1997		3.45
Number of regions	1998 2000		77 counties (NUTS 3) 4 self-governing regions and 6-8 plan regions (NUTS 2)
Number of municipalities	1998		1996

The necessity of regional development policy

The necessity of regional policy in the Czech Republic is related to the existing problems and disproportion of regional development, expressed more visibly during the transition process and have the following manifestation (Principles..., 1998):

regionally differentiated increase in unemployment; most affected are the regions with high concentration of coal output, metallurgy, machine-building and textiles (Northwestern Bohemia, Northern Moravia, Kladno)

increase in regional differences in income; Prague is in the most favorable position, while regions with predominant agricultural production and consumer goods manufacturing are worst affected

increase in the differences in per citizen local tax revenues; in Prague these are twice higher than the country average,while in some counties they amount to 45% to 55% of the country average

differentiated development of private enterprises and foreign investment, which in many regions are limited by the low level of infrastructure development, the education and the professional skills of the workforce, the existence of environmental problems and unfavorable image

limited mobility of the workforce (the existence of mobility could compensate the differences in location attractiveness) due to the unsatisfactory condition of transport infrastructure and public transport

unsatisfactory environmental conditions leading to lower investment levels (Northern Moravia, Northern Bohemia, Prague, etc.)

existence of pronounced conflicts between environmental protection and development, especially in the regions of big protected territories.

In the short run, the specific actions in the area of regional policy are determined by several factors:

the need to define the problems and formulate a regional development strategy for the Czech Republic

the Czech Republic’s preparation for EU accession (it is necessary to react to the European Commission’s criticism on the condition of regional development policy)

connecting the central government’s regional policy with the future competencies of second-level administrative units, in relation to the administrative and territorial reform.

Two stages of regional development policy in the Czech Republic during the 90s can be distinguished clearly.

During the first stage (until 1996), a too narrow, sector-dominated approach was used. Regional policy measures in the Czech Republic were concentrated exclusively on support for small and medium-size enterprises from the so-called areas with economic problems. Regional policy enactment competencies were assigned to the Ministry of the Economy. Defined in this way, regional policy does not include coordination of the activities of other sectors with significant regional impact, and regional and local governments’ participation is limited. There is no system for providing program assistance to problem areas. Planning is totally renounced. The state’s attitude is expressed mainly in sector approaches with no interaction between them, and a lack of integrated regional approach (Principles..., 1998). These problems are listed in the Position Paper of the European Commission on the Czech Republic’s application for EU membership, where it is explicitly stated that "the Czech Republic has no regional policy" and that the initiatives aimed at regional development are being applied through several national approaches, while at the same time there is no independent regional development policy. The initial limited attention paid to regional development policy is explained by several factors: the focus on macroeconomics stabilization and economic reform (due to its historical legacy from the period after 1968, the country was in a less favorable starting position than neighboring Poland and Hungary); the necessity for a new government structure after the break-up of Czechoslovakia; the enforcement of the new Constitution, etc. (Public Management Profiles..., 1995)

It can be said that the second stage began with the formation of the Ministry of Local Development (1996). It is marked by an aspiration towards a complete change of the approach to regional development policy and its coordination with the EU accession requirements. Its major elements are: existence of clearly defined goal and principles; orientation towards a wider circle of regional political measures; focus on programming, integration of the regional level and coordination, as well as the formation of a specialized ministry.

Legislative regulation of regional development policy

The Czech Republic has no special act that regulates regional development. The minister of local development assigned the development of a Regional Development Assistance Act by June, 1998. The Act’s preliminary content includes: identification of the goals and orientation of regional policy; identification of the competencies of the national and regional territorial units, including the cooperation between these authorities; the method of implementation of regional development programs, including programs co-funded by the EU.

Because of the lack of a special Act, the national government interprets regional development policy on the basis of “Principles” adopted by it. In 1992, “Principles for Regional Economic Policy” were adopted; these were repealed in 1998 and substituted by new “Regional Policy Principles of the Government of the Czech Republic”. By adopting these, the government agreed on the general rules for the implementation of regional policy, including on the role of coordination between different ministries and on the management of funds. The existence of such a political decision is evaluated as an important prerequisite and a reference point for further work on legislation, strategies and programs. The Act regulating regional development will be based on the “principles”.

The “Regional Policy Principles” are based on an analysis of the approaches to regional policy used in the EU countries, on the analyses and trends in the Czech Republic’s modern regional development, and on the evaluation of the former measures of regional policy.

Specifically, they include:

definitions and principles of regional policy, including the interrelation with the regional policy of the EU
regions defined for assistance, including criteria for their selection
policy statements and instruments of regional policy, including sector measures
institutional framework for regional policy implementation (at national, regional and local level)
management of funds, coordination and tasks related to the preparation of the Act, the national strategy, and other documents.

The principles underline the great importance of the planned strategic approach to regional development, which is to be implemented by two types of documents prepared at national level and different by content and scope.

National strategy for regional development - covers the territory of the whole country, will be updated every 3 years and should contain analysis by sectors and regions of regional development for the preceding period, as well as an evaluation of sector measures and the regions’ approaches, identification of the strengths and weaknesses of development in the different regions, industries and sectors, a preliminary strategy for the future regional development of the country, identification of priorities and measures for stimulation of development, strategies for development of formal regions, identification of regions for concentrated state assistance, proposed changes in the relations between the state and the regions and recommendations to the different bodies in regard to program assistance, policy changes, etc. In its nature this will be a conceptual strategic document that will not provide for specific distributions of funds by regions or by separate projects.

Regional development programs - integrated (multi-sector) programs covering a period of several years and developed for assistance to preliminary selected regions, with a specific schedule and financial framework for implementation . They must contain: evaluation of development so far; analysis of the region’s strengths and weaknesses; development strategy for the region; detailed identification of priorities and measures for support of the strategy (including identification of the goals that must be achieved by applying the separate measures); identification of funds for the strategy; identification of the method of implementation of the program (selection requirements for individual projects), the responsibilities, the method of management and evaluation of the program.
The principles do not define the type and content of the policy papers that will formulate the regional policy for the formal regions , but state that the newly established regional authorities will be responsible for their preparation, implementation and control.
Included is the explicit requirement for harmonization of policy papers’ preparation with the approach used by the EU.
With a decision of April 8, 1998, the national government assigned the minister of local development, together with the other ministries, with the chairperson of the Czech Statistical Service and the county governors and the mayors of big cities, to be prepared by June 30, 1998, a draft Strategy for Regional Development of the Czech Republic, as well as projects for regional development programs for selected regions.

Goals and principles of the regional development policy

According to the “Principles” of 1998, regional policy is conceptual and executive activity performed by the state and the regional bodies, and has the following goals:

to contribute for harmonious and balanced development of the separate regions
to reduce the differences in the level of development of the separate regions
to support the economic and social development of the separate regions, especially from the point of view of activating their insufficiently used economic and social potential.

A special attention is paid to the interpretation of this goal as proportional, crisis-free development and utilization of the existing potential of the regions, as creation of equal opportunities and not of “equal development”. This goal is also supported with many examples from the legislation of EU member countries and of the EU itself. ₅

The basic, explicitly declared principles of regional policy are:

concentration of the state efforts and funds for regional policy in the problematic regions
conceptual approach and planning for relatively long periods
decentralization of decision-making related to regional policy
subsidiarity (state funds are not the major, but a supplemental source of support for activities initiated within the region)
partnership (close cooperation between the administrative bodies, the bodies of self-government and other authorities and organizations in the formulation and implementation of regional policy, both vertically and horizontally).

Included is an explicit requirement to conform regional development programs to the territorial division plans and to the principles of environmental protection and sustainable development.

The “Principles” provide for two levels of formulation and implementation of regional policy - national (mainly selective, oriented towards preliminary defined “problem” areas) and regional (covers the whole territory and focuses on problems within the region). These two levels also have different subjects - the central government and the regional self-governing authorities that are to be established.

Regions subjected to the regional development

For the purposes of the regional policy, the regions are divided into formal (administrative) and informal (problem).

Problem regions (also called regions of concentrated state support, as they are the main object of direct state intervention) have been defined by analogy with the regions under goals 2 and 5b of the structural funds - structurally affected (industrial regions with decline of traditional industries and high unemployment) and economically weak (with low level of economic development and living standard, mainly rural) regions. The “Principles” define the selection criteria for identifying problem regions, and the Appendices to them present the overall delimiting methodics. With a decision of the national government, it is possible to provide support at national level for other problem regions, too. Currently, such are the cross-border cooperation regions.
The formal (administrative) regions (regions for decentralized governance of regional development) are not subject to direct state intervention and the regional policy on their territory will be formulated and implemented by the competent regional authorities, which are to be established in 2000. The process of reforming the administrative-and-territorial structure by establishing a third (regional) level of self-government, Community Support ₆ which will be used to channel regionally the political support from the EU.

Competent bodies at the national level

The Parliament gets involved only on key issues of regional development policy, such as the enactment of the necessary legislative changes and the approval of funds state budget funds for regional development. The Chamber of Deputies has a Committee on Public Administration, Regional Development and Environment.

The national government’s functions with regard to regional development are:

adopts the basic measures related to the formulation and implementation of regional policy in the Czech Republic
submits to the

Chamber of Deputies

a proposal on the amount of funding from the state budget that will be spent for support of the state’s regional policy and makes the necessary legislative proposals related to regional policy.

The competent ministry

Within the executive power, responsibility for the regional policy has the Ministry of Regional (Local) Development. The Ministry was established in 1996 and under the Competence Act of the same year its major responsibilities are the coordination of the state’s regional policy and the management of state budget funds approved for spending on the regional policy. More specifically, the Ministry:

prepares analyses and evaluations on the development of the separate territorial units and the proposals for the selection of regions with concentrated state support

manages the funds for the state’s regional policy

coordinates the activity of the bodies within the central state administration; in the future, coordination will encompass also the self-governing bodies of the regions on the issues of regional development, including the preparation and funding of the regional development programs

provides the preparation of the regional development strategy of the Czech Republic and, until the self-governing regions are formed, the preparation of the regional development programs for the preliminary defined regions (including the regional programs co-funded by the EU)

provides the preparation of regional programs for support of entrepreneurial activities (see item III.8).

The Ministry of Regional Development has also functions related to spatial planning.

With regard to the administrative-and territorial division and the local authorities, the competent body is the Ministry of the Interior that has been assigned to prepare the necessary legislation in this area.

Coordination and integration of sector policies

According to local experts, coordination is a serious problem, especially between the Ministry of Regional Development, the Ministry of Finance, the Ministry of the Interior and the sector ministries.

The “Principles” pay special attention to coordination and more specifically, to the connection and differentiation between the regional policy of the state and the sector policies with regional impact, respectively the regionally-differentiated sector policies. It is accepted that the regional policy of the state is implemented exclusively by the Ministry of Regional Development (according to the Competence Act) by means of integrated programs, while the regionally-differentiated sector policies are only within the competence of the respective ministries and are being implemented according to criteria established by them. Sector measures regarding the regions, however, are to be evaluated within the framework of the Strategy for Regional Development of the Czech Republic.

When the regional self-government bodies are established, the distribution of the funds of the sector programs that have a direct impact on the development of the respective territory (based on the regional development programs), and more specifically in those cases when these funds are not transferred directly to the budget of the regional self-government bodies on the basis of decentralization, will be agreed upon with the above mentioned bodies.

With regard to the regional development policy, the different ministries and agencies of the central government have responsibilities (under the “Principles”) within their respective budgets and competencies:

to assist the achievement of regional policy goals within the sector concepts and programs
to cooperate with the Ministry of Local Development in the preparation of the policy papers on regional development
to account for the situation in the different regions, including the identification of regional criteria and differentiated distribution of funds within the sector concepts and programs.

Coordination for support of the regional policy of the state is applied in relatively few cases: the development of a Strategy for Regional Development of the Czech Republic; the development and financing of integrated regional development programs for preliminary selected regions and development of sector programs (funds for subsidies) for separate sectors, if these are applied to a preliminary selected region. It does not mean joint decision-making on the distribution of funds in the respective sector and does not intervene with the competencies of the separate bodies.

A special advisory body n regional development does not exist and is not provided for. This can be explained by the clear definition of the connection and differentiation between the regional and the sector policies and the creation of another mechanism of coordination.

The Ministry is assisted in its efforts by a Center for Regional Development - an executive agency engaged in activities, such as information support, analyses, planning, implementation, assistance in establishing regional agencies, etc.

Bodies at regional level

Role of existing administrative structures

The administrative-and-territorial division is two-tier - municipality and county. The regional level of government and self-government was repealed in 1990, to a great extent only on purely political grounds and without sufficient economic and administrative reasons. It was reformed many times in the near past (1948 - a total of 19 regions in Czechoslovakia; 1960 - 10 regions, of which 7 in the Czech Republic). In 1997, 14 regions were established and the government was assigned to submit a bill on their competencies, funding sources, etc., by the year 2000.

The municipalities are territorial units with local self-government. They are highly fragmented, especially after 1990 (between 1989 and 1998, their number grew from 4,200 to over 6,200). The municipalities are guaranteed the right of associating, including for more efficient performance of their functions. The municipalities are delegated state and administrative functions. About 380 bigger municipalities perform “extended” functions with regard to the neighboring smaller municipalities, and the municipalities of the biggest cities perform also the functions of county administrations. Half of the taxes collected on the territory of the county are transferred to the county tax authority, and the other half are distributed between the municipalities in the county on the basis of their population (about 50% of municipalities’ revenues come from taxes). The municipalities are a major subject of local development and, in consistency with the Municipalities’ Act, assist the achievement of regional policy goals by establishing conditions for economic, social and cultural development on their territory. The local authority can:

approve development programs on their territory
support the development of entrepreneurial activities on their territory, especially by preparation of lots for investors
combine their resources and efforts with neighboring municipalities and other legal persons, in order to achieve common development goals that will benefit several municipalities
to cooperate with the respective region in the development and implementation of the regional development program.

The county administrations are state administrative agencies with common competence, regulated and controlled by the national government that also appoints the regional governors. They have county committees (councils) consisting of representatives of the municipalities, which approve the decisions of the regional governor in some areas, such as the distribution of the total state subsidy between the municipalities, and which control the implementation of the county budget.

The county level administration is fragmented, too, which is a reflection of the situation at municipal level; by 1998, there were 77 counties.

In general, the county governors do not have functions related to regional development. However, until the self-governing regions are formed, they can be authorized by the national government to perform temporarily some of the functions related to the development and the implementation of regional policy (analysis and evaluation of the territory, cooperation in developing the regional assistance programs, proposals for distribution of the funds from the state budgets by separate beneficiaries in the county, etc.)

One of the basic principles of the regional policy in the Czech Republic is the decisive role of regional subjects in regional development, in the formulation and implementation of the regional policy. This principle defines also the currently key problem of the regional policy -

the lack of responsible partner of the national government at local level, who would be able to express the national interests.

When the bodies at regional level are established, they will provide the coordination of the regional development within their own sphere of competence, and will have the following basic competencies related to the regional development:

analytical activities in the area of monitoring at internal regional level

coordination of the interest of the municipalities and associations of municipalities within the region

decision-making related to the subsidies from the state budget for support of regional development (excluding the subsidies for development of the state administrative agencies and the state property)

granting subsidies and credits from their own budgets to the local authorities and other legal persons working on the territory of the region

possibilities to establish legal persons to support the development of the region (regional agencies, economic, scientific and technical parks, etc.)

participation in the development of the Regional Development Strategy of the Czech Republic

support in the development, implementation and control on implementation of the regional development programs, including the programs with foreign assistance

cooperation with the Ministry of Local Development and other central government agencies in solving regional problems which are beyond the capacity of the region and the municipalities, including granting subsidies from the state budget

cooperation with the regional bodies of other countries, especially with regard to cross-border cooperation.

It is expected that the new regional authorities will be assigned some competencies regarding the management of certain infrastructure and activities (roads, cultural, educational, social and healthcare institutions), as well as in the area of territorial planning, which will increase their ability to coordinate the development of their regions and at the same time to cooperate with the national government.

Regional agencies

The activity of the regional authorities is closely related to the necessity to form regional structures which will be able to take care of the implementation of various regional activities (planning, information gathering, regional advertising of companies, tourism development, etc.), as well as for the implementation of the EU assistance programs, and especially of the programs of the structural funds. The establishment of the first agencies in the Czech Republic was supported by Phare (Ostrava, Most, Liberec, Shumava) but the state practically does not fund the programs developed by these agencies. Currently, there are 10 agencies which are established as corporations, limited-liability companies or associations (with the participation of the ministry and associations of local authorities) - but none of them distributes its profit. Here is an ongoing discussion to expand the network with support from the state (the Ministry of Regional Development) and partial financing of the development projects implemented by these agencies. The development of these organizations is expected to be a responsibility mainly of the regional authorities.

The agency in Ostrava can be taken as an example. It was established as an EU pilot project in 1993 (ECU 2 million were granted for the first two years) and it was the first regional development agency in the Czech Republic. It was initiated by the local institutions of the region, and the initiative was supported by the national government on the basis of an official recommendation of a French consulting company. An important factor that needs to be considered is that the first regional association of municipalities in the region had already been established. The Association for Reconstruction and Development of Northern Moravia and Silesia also existed for a long time.

The agency is a corporation in which shareholders are: the Ministry of Regional Development of the Czech Republic (30%); the Association for Development of Northern Moravia and Silesia (35%); the Association of the Municipalities in Northern Moravia and Silesia (30%). As a shareholder, the Ministry can influence the decision-making process. Its representatives take part both in the management bodies of the agency, and in the development of specific projects. On the other hand, the Agency assists the Ministry, for example in the preparation of development strategies for other agencies.

The Agency’s mission is to support the coordination of the economic and social transformation of the region by:

developing regional projects

supporting the development of various forms of entrepreneurship

providing information services to the municipalities and the institutions

functioning as a regional center for the purposes of the international cooperation

participating in the formulation and development of the regional policy.

Apart from its core activities, the Agency also functions as one of the units that manage Phare projects in the Czech Republic, as a regional office of the government agency for encouragement of direct foreign investments, as a secretariat of the program for cross-border cooperation with Poland, and as a regional Euro-Info correspondent center.

To finance its activity, the Agency seeks actively to attract funds, mainly from international programs and projects. With 12 employees and operating costs of about 10 million CZK annually, the loan capital is 45 to 55 million annually for the last 4 years.

More important specific activities and projects of the Agency are:

development of a strategy for regional development

development and implementation of strategic programs for development of the cities in Northern Moravia and Silesia

establishing a business zone at the former military airport Ostrava-Moshnov

establishing the Ostrava scientific and technological park (the Agency, the city of Ostrava and 3 universities are shareholders in the company for the development of the park includes)

testing a project for work under the requirements of the structural funds

establishing 7 business centers in other areas of the country

establishing an information center, which also performs the functions of an Euro-Info Center (information on EU acts), a tourist information center and a regional data base and geographic information system

establishing a network of 27 tourist information centers, a complex of biking routes, etc.

Funding of policy at the regional level

The state budget allocates funds for regional policy, which are managed by the Ministry of Local Development and are used for:

programs for regional development of preliminary selected regions

programs for regional incentives for entrepreneurship.

The Ministry of Local Development manages also the EU funds allocated for regional programs to support preliminary selected regions.

The Ministry’s position is that the funds allocated so far have been extremely limited and have to be significantly increased in 1999, as stipulated in the co-financing requirements of the EU.

Measures and instruments of regional development policy - type, actions, rules

According to the “Principles”, to achieve the goals of the regional policy standard, existing and functioning economic and financial instruments are used which do not encroach on competition and do not preserve outdated regional economic structures:

state guarantees on bank credits

full or partial compensation of interest payments on bank credits

subsidies

credits

subsidies for job creation.

These instruments are aimed at a wide circle of problems related to the development of the regions, and more specifically to:

economic activities in the territory, in the form of direct or indirect assistance for entrepreneurial activities, including agriculture and tourism

development of transport infrastructure and transport services in the region

civil and technical installations and public services in the territory, in order to improve the quality of life and employment of the population and to meet its needs within an acceptable travelling distance

human resources (improvement of skills, re-training and other measures in the workforce market

improvement and protection of the environment

development of regional policy papers and creation of institutions specialized in supporting the territory (regional development agencies).

The importance of the existence of clear rules within the budget and tax policy, in order to create the basis for making rational economic decisions, is explicitly stated.

1.1.1 Relation between the regional development policy and the EU accession process

The aspiration for EU accession is a significant, if not dominant, factor in the formulation and implementation of regional development policy in the Czech Republic. This is expressed in several basic directions:

an explicitly declared goal of the regional policy concept (“Principles”) is the regional policy in the Czech Republic to be consistent with the basic principles of the EU regional policy and to establish such mechanisms that will make it possible in the future to receive assistance from the EU structural funds. In its manifesto of January 1998, the national government underlined the importance of “adopting principles of regional policy in consistency with the EU policy practices”

a significant attention paid to the regional policy in the National Program for Preparation of the Czech Republic for EU Accession, which includes specifically: establishing a legal framework for the regional development policy (adopting the “Regional Policy Principles in the Czech Republic” and of a bill on support for regional development); developing a project for the organizational structures which will develop and implement programs of the structural funds; development of concrete analytical and policy papers; establishing a system for co-financing and rules on the regulation of the relations between the state budget and the resources of the structural funds, etc.

a high level of integration of the principles of the European regional policy in the concept of the country’s regional policy (“Principles...”). In reality, it is based on the established principles of the European national policy.

complete consistency with structural funds’ practice in defining the types of regions that will be supported and the criteria for their delimitation

a high level of preparation of the content of regional development policy. By June, 1998, an analytical document (regional and sector analysis) must be prepared that will be a basic document in the process of negotiations with the European Commission and in the development of the Program for Regional Development of the Czech Republic.

preparation of the institutional structures which will be needed to use the structural funds. Within the Council for European Integration, which reports directly to the prime-minister, there is a special work group on the preparation for the use of the structural funds. The work group is coordinated by the Ministry of Regional Development which has a European Integration Department (a similar department exists in most of the other ministries, too). There pilot programs of the structural funds’ type have been started so far in selected regions, in order to create experience in the development and implementation of such programs among the regional and local subjects and the employees of the central authorities. Established are regional governing structures that meet the requirements of the EU structural funds - monitoring and management committees and program secretariats. It is proposed to expand the territorial scope of the experimental programs in 1999, so that they would cover a territorial unit at NUTS II level (Northern Bohemia), in order to test the procedure of the program approach for larger size of the funds. The 1998 PHARE program includes a Special Preparatory Program for Structural Policy, aimed at supporting the national development strategy and the institutional framework of the structural and regional policy in the Czech Republic, in consistency with the requirements of the structural and the cohesion funds of the EU, towards developing regional policy instruments and the cohesion policy, human resources development and pilot programs implementation. To manage the Special Preparatory Program, it is proposed that a managing unit be established, in consistency with the rules applied to the work of the structural funds - a Monitoring Committee with two sub-committees for the ISA and SAPARD programs, respectively, a secretariat and expert groups.

Initially, the overall coordination of the relationships with the EU in the area of regional development was assigned to the Ministry of Regional Development. With a decision of March 4, 1998, the national government divided the coordinating functions as follows: for the European Fund for Regional Development - the Ministry of Regional Development; for the European Social Fund - the Ministry of Labor and Social Affairs; for the European Agricultural Guidance and Guarantees Fund - the Ministry of Agriculture in cooperation with the Ministry of Regional Development. The national government assigned the minister of regional development the preparation of a project for institutional framework for participation of the Czech Republic in the programs of the structural funds and for unification of the positions of the Ministry of Regional Development and the Statistical Service on identifying the borders of the territorial statistical units (NUTS) in consistency with the EUROSTAT criteria.

Although the level of development in the capital Prague is higher than the average for the EU, it is expected that the whole country will be treated as a region under goal 1 of the structural funds (regions lagging in their development).

The EU programs have always had a significant importance for the development of the regional policy and especially for its institutionalization (establishing regional development agencies). The total budget of PHARE for 1990 - 1994 was ECU 265 million, and for 1995-99 - about ECU 330 million, of which 47% are allocated for cross-border cooperation. The main regional programs are for Northern Moravia (CU 12 million) and Northern Bohemia (ECU 2 million) and for cross-border cooperation with Germany (ECU 25 million), but other programs also have a strong regional impact - the programs for small and medium-size enterprises (ECU 25 million), for restructuring of companies and export incentives (ECU 23 million), etc. The experts of the Ministry of Local Development, however, are skeptical about the content of the pre-accession programs, due to the lack of special larger-scale programs that would allow to test the procedures of the structural funds “more realistically” (the ISPA program, often treated as such, is analog of the cohesion fund and is oriented exclusively towards infrastructure measures n the area of transport and environment).

Sources:

Annual Report. Regional Development Agency A.S., 1998.

Illner, M. Territorial decentralization - a Stumbling block of democratic reforms in East-Central Europe? - Polish Sociological Review, 1997, No 1, 23-45.

Linek, R. Preparing the Czech Republic for Structural Funds. - EU Accession and regional development. International Conference, The PHARE Estonia regional development project, 15-16.06.1998

Phare Programmes in the Czech Republic. European Commission, Directorate General for External Relations.

Principles of government regional policy. 1988 (Check Republik)

Public Management Profiles. SIGMA Countries. Revised Edition, 1995. OECD, Paris, 1995.

Resolution No 235 of the Government of the Czech Republic of 8 April on Principles of government regional policy. 1988

The Union for the Development of North Moravia and Silesia - Czech Republic. 1997.

5 years of Regional Development in North Moravia and Silesia (1993-1998). Regional Development Agency A.S., 1998.

Country profile 2: Hungary

Table 1: General information

Indicator Year Unit For the Country

Population 1996 persons 10 174 000

Territory square kilometer 93 030

Density of population persons per square kilometer 110

Unemployment 1997 % 10

Inflation 1997 % 17

Size of Gross National Product 1997 % 4

Gross National Product (GNP) 1997 USD per capita 6 800

Percentage of the GNP of the EU countries 1995 % 37

Import from the EU 1996 % 60

Export for the EU 1996 % 60

Number of municipalities 1997 3 097 (NUTS 5) ₇

Number of regions 1998 19 (NUTS 3)

Indicator	Year	Unit	For the Country
Population	1996	persons	10 174 000
Territory		square kilometer	93 030
Density of population		persons per square kilometer	110
Unemployment	1997	%	10
Inflation	1997	%	17
Size of Gross National Product	1997	%	4
Gross National Product (GNP)	1997	USD per capita	6 800
Percentage of the GNP of the EU countries	1995	%	37
Import from the EU	1996	%	60
Export for the EU	1996	%	60
Number of municipalities	1997		3 097 (NUTS 5) ₇
Number of regions	1998		19 (NUTS 3)

1. Necessity for regional development policy

The principle of regional equality is part of the Concept for National Development of Regional Networks of 1971, adopted by the government, as well as included in the 1985 government decision regarding long-term principles of regional and urban development. The resources are directed according to sectors, and the financial regulations, planning and decisions are based on the sector oriented approach. In spite of the growing differences between cities and villages, the differences between separate regions have remained more moderate. The principle of equality, though, is a natural result of economic policy and not of regional policy, as far as the reallocation of resources from the more effective organizations towards the less effective ones has also ensured equalization among regions.

After 1990 the lack of economic regulators combined with the loss of the Eastern markets, the increase of taxes and fees, the human resource cut down in mining, metallurgy, agriculture and farming, the disruption of traditional economic links, the preferences of foreign capital for the cities and the change in the type of property led to the emergence of considerable regional differences in income and employment, according to the European Commission’s assessment. The income level varies from 206 per cent from the national average in Budapest to 67 per cent in the northwestern part of the country (the Nograd district). The majority of districts with GNP above the country’s average are situated in the western and central parts of the country. Unemployment there and in the capital is lowest (about 7 per cent), while in the eastern part it is over 16 per cent. With the lack of proper policy these differences may be multiplied and seriously aggravated.

Therefore, regional policy is directed to management of the problems, which deepen the inequalities between Eastern and Western Hungary represented by:

the better capacity, social and economic structure in the capital of Budapest, in the regions close to the Austrian border and in some district and academic cities. The strong concentration of population, economy, intellectual resources and institutional systems in Budapest continues to be a specific problem - 20 per cent of the country’s population, 40 per cent of all university teachers, 38 per cent of the business organizations and 52 per cent of the stock companies are concentrated there;

the more unfavorable situation of the regions, which formerly produced goods for the eastern markets, had metallurgy and mining as their main industry, the regions with unsuitable conditions for agriculture and undeveloped infrastructure and social structure. This is true mainly for Eastern Hungary and some other smaller regions, which are experiencing harsh crisis.

2. Regulatory arrangement of the regional development policy

The management of the regional development policy is perceived as a serious political task. Hungary is the first country in Central and Eastern Europe, which created an accomplished institutional system for regional development.

The complete and legally refined legislation for regional development in Hungary, as well as its system of institutions are of unique and pioneer type in Central Eastern Europe and could be an example for a number of European union member states. That was acknowledged in the statement of the European Commission about the country with regard to its EU accession and shows that many elements of Hungarian regional policy are compatible with the structural policy of the European Union ₈ .

At the end of 1995 the government has adopted a program for modernization titled "Hungary in New Europe". This document develops the framework for Hungary’s preparation for membership, including the sphere of regionalization, regional development and regional policy as key elements in the creation of a decentralized and more effective administrative structure.

The XXI Regional Development and Physical Planning Act was adopted in 1996, after which by government decisions began activities for building the institutional system, legal framework and financial system. A number of the law’s provisions were planned to be in accordance with acquis communotaire.

The purpose of the act is to define the rules and main tasks of regional development and physical planning in the country and to establish the necessary institutional structure with regard to ensuring balanced regional development in the country as well as social and economic development of every region, executing an overall policy of regional development and coordination of action on national and regional level in development and planning.

In March 1998 the Parliament adopted the Regional Development Concept ₉ . The structure of the Hungarian concept for regional development and its regional orientation, according to the evaluation of the Organization for Economic Cooperation and Development, in part answer the requirements for a national program document for regional development and compliance with EU’s long-term development goals ₁₀ .

3. Goals and principles of the regional development policy

Goals and objectives of regional development and physical planning (art. 2 of the act) are to:

assist the development of market economy in every region of the country, create the necessary conditions for sustainable development, encourage innovations and create a structure corresponding to the social, economic goals and the prevention of the environment;

reduce the considerable differences - in the living conditions, in the economic, cultural and infrastructure conditions - between the capital city and the rest of the country, between the cities and the villages, as well as between the developed and undeveloped regions and areas; to prevent the emergence of new crisis spots and ensure equal social opportunities;

assist balanced development of the environmental and urban structure of the country;

The goals of regional development and physical planning (art. 3 of the act) are to:

encourage the regional development and physical planning initiatives of the regional and local communities and coordinate these initiatives with the national goals;

define, draft and implement concepts, programs and projects for development, which serve to improve the balance between society, economy, environment and nature;

help, through international cooperation, the adaptation to EU’s regional policy, to utilize mutual benefit from regional cooperation and assist a coordinated development of border regions.

The specific goals of regional development are to:

draft, coordinate and implement development policy, that sustains social and economic revival, and that utilizes regional resources;

assist the equalization and development of the poorly developed regions;

assist the restructuring of economy in the industrial and agricultural regions and reduce unemployment;

improve the conditions for innovation of the central populated regions that possess relevant material and intellectual resources and support the dissemination of innovations on a regional level;

help the development of high priority regions;

create attractive enterprising environment for investors.

The act contains precise definitions of the used main terms/concepts:

regional development on national and regional level means:

monitoring and evaluation of the processes in social, economic and natural environment on national and regional level and defining the direction of the necessary planning interventions;

defining, coordination and implementation of overall national and regional short-term, mid-term and long-term development goals, concepts and measures in the framework of the development programs and their inclusion in other sector decisions.

regional development policy means the establishment of the main directions and strategic objectives of regional development on national and regional levels and the creation of long-term methods for the best achievement of these objectives;

areas, appropriate for support - a list of settlements, identified with regard to the main objectives of regional development;

regional development concept is a planning document, which influences and provides the basis for long-term development of the country’s regions, defines the long-term overall goals for the development of the regions in the country, the principles necessary for drafting development programs and provides information to the participants in the sector planning, physical planning and regional development;

regional development programs - a mid-term action plan, drafted in accordance with the regional development concept;

high priority region is a territorial unit, covering one district or several districts (or the capital city) or part of a district, which is treated as a single unit from a socio-economic point of view, the equal planning and development that is supported with regard to national interest or due to objectives defined by other act of regulation (the agglomeration of Budapest, regions with outstanding conditions for recreation, national parks covering the territory of several districts, regions with protected environment, border and other specific regions).

Regions, subject to the regional development policy

The law defines two types of regions:

statistical planning region (macro-region) - a territorial unit, covering several districts (or the capital city) reserved for planning and strategic objectives, whose borders are defined by the administrative borders of the included districts. Seven such macro-regions are in the process being formed (NUTS 2);

development region - a territorial unit, encompassing the whole or part of the territory of several districts (the capital city), governed in a coordinated way from social and economic point of view.

The law contains a definitions of the type of regions, which are subject to (or recipients of) the regional development policy and which are distinguished in the Concept as follows:

I. Economically challenged regions:

socially and economically undeveloped regions. These are regions where productivity, infrastructure development or the social indicators are considerably weaker compared to the country’s average. Their development priorities are: investments for creating new jobs and receiving external funding; development of an infrastructure that helps economy’s development; projects that provide opportunities for the development of the region’s own resources; human resource development; improvement of the main social and healthcare services; support for complex development, based on the opportunity for recreation, tourism, entertainment, etc.

regions at the stage of industrial restructuring. Priorities: encouragement of the economic restructuring and directing of external funding; support for the structural adaptation of industry and innovation; organizing programs for professional training and retraining; changing the inappropriate infrastructure and directing special attention to investment aiming at environment prevention.

agricultural (rural) regions. Priorities: structure stabilization and combining agricultural production with product marketing, as well as relevant development of infrastructure; support for the small stock-holders in the regions with poor agricultural conditions; support for the additional activities of the people involved in agriculture and farming and creation of employment alternatives; broadening of the social programs connected with agriculture, etc.

regions, afflicted by permanent and high unemployment. Priorities: employment programs; special target programs for development of local economies; part-time employment; creation and support of welfare activities; development of education and retraining; development of family and daily social services with healthcare programs;

III. Regions with different natural and geographic characteristics

regions suitable for territory prevention and protection by means of physical planning; agglomerations; recreational areas; protected environment regions; regions with threatened environment; border regions.

5. Institutional structure

The Regional Development and Physical Planning Act envisions that regional development is executed in cooperation between state organizations, local governments, physical entities, economic organizations, etc.

5.1. Competent authorities on the national level

5.2. Competent ministries

The ministry of environment and regional policy was created in 1990. Like in other countries, where such ministries were created quite recently, here it has been difficult for the ministry to formulate an independent position with regard to sector policies.

The tasks of the minister are to:

prepare concepts and proposals in order to provide the basis for a national policy on regional development;

draft a national concept for regional development and coordinate the national and regional concepts and programs; participate in the preparation of programs for development of the high priority regions and organize the execution of tasks regarding the implementation of these programs, as well as use of financial resources allocated for this purpose.

5.1.2. National Council for Regional Development

In accordance with the law’s provisions, in December 1996 the government has created the National Council for Regional Development, which plays a great role in coordinating sector policies, as well as for improving coordination between ministries and their decentralized structures and the councils for regional development. Chairman of the council is the Minister of environment and regional policy and its members are:

six representatives of the district councils for regional development;

the chairpersons of the national chambers of commerce;

one representative from each of the organizations of employers and employees;

the ministers of the environment and regional development, internal affairs, agriculture, industry and commerce, transportation, communication and water management, labor, public welfare, finance, culture and education;

a representative of the Mayor of Budapest;

one common representative of the national associations of municipalities.

The tasks of the council are to:

participate in the formulation and execution of the regional development policy, draft decisions by using its own competencies, make suggestions, issue statements and coordinate activities;

assist the coordination of the development programs on national and regional levels, as well as of central, sector and regional concepts;

issue statements on the principles for regional development support and decentralization and the criteria for defining the regions that will receive support;

make proposals with regard to coordination of the sector financial resources for regional development;

make proposals for the distribution of money, allocated to regional development and the resources defined for this purpose in the state budget;

monitor and evaluate the coordination between the objectives of regional policy and the development goals of the ministries, other national bodies and councils for regional development;

discuss the concepts for sector development that have important regional impact;

coordinate the responsibilities delegated to local authorities by the Parliament;

5.2 Regional bodies for the implementation of regional policy.

5.2.1. The role of the existing administrative structures

The districts are responsible for the coordination of the development plans of central government, local self-government, the associations for regional development of the municipalities and the business organizations. In this activity they work cooperatively with the district and the regional council for development.

5.2.2. District Councils for Development

They coordinate the tasks regarding regional development on the territory of the district. The councils are registered as legal entities. The resources for their activity are provided by their members. Central budget participates in the expenditure of the councils in e certain proportion, which is defined together with the Budget Law. The council executes its tasks connected with employment and cooperation with the district councils on labor. The councils works in cooperation with the municipalities and the regional public administration organizations, as well as with public organizations involved directly or indirectly in the regions’ development.

Functions of the councils:

studies and evaluates the social and economic situation and potential of the region;

drafts and approves, in accordance with the National Concept, a long-term strategy for the district’s development, a program for regional development of the district and individual sub-programs;

drafts financial plans for supporting the implementation of the development programs;

signs agreements with the respective ministries with regard to funding to individual development programs for the district;

in accordance with other laws and regulations, participates in the preparation of decisions concerning the allocation of separate state funds and resources from other financial sources for the purposes of regional equalization and participates in the evaluation of how funding was spent;

conduct fundraising for its activities and for the implementation of development programs;

The councils take decisions concerning the spending of funds, which are within their competencies for regional development projects execution in the framework of system for application and in accordance with the concept for regional development of the district.

Members of the district council for development include:

the President of the district’s General Assembly , who is also the President of the council;

the mayor(s) of the town(s) with district status;

one representative of the Minister of Environment and Regional Policy;

representatives of the regional chambers of commerce;

representatives of the regional municipal associations for development;

one representative of the District Council on Labor.

The council adopts a Book of Regulations for the organization of its activities by the unanimous vote of all its members.

5.2.3. Regional Council for Development

These could be created out of the district councils for development with regard to executing the development tasks including regions beyond the borders of the respective districts. They are registered as legal entities. When forming the regional council, the organizations involved sign an agreement about the responsibilities it will perform. The regional council is entitled to sign agreements with district councils and the participants in the programs for regional development on the financing of the programs and projects for development.

Council members are:

the presidents of the district councils for development, functioning on the region’s territory;

representatives of the ministers of the environment and regional development, finance, interior, transportation, communication and water management, agriculture, industry and commerce, labor, culture and education, public welfare;

one representative of the chambers of commerce;

up to six representatives of the associations of municipalities for regional development;

The President of the Regional Council for Development is elected out of the council members.

5.2.4. Participation of the municipalities

The municipalities participate in the formation and execution of the regional development policy through their own associations for regional development. They have the responsibility to develop urban settlements in a coordinated manner, to draft joint programs for development, to create funds for the needs of the development programs. The concepts and programs for regional development drafted by the associations receive final approval after the statement of the respective district council for regional development.

The first stage of the institutionalization program after the adoption of the act was completed at the end of 1996. Beginning July 1996, within thirty days after the act’s adoption, the general assemblies of the districts created the district council for development despite the number of difficulties in the creation of a new, unprecedented institution of a different legal status. It has been marked that the creation of the district councils for development strengthened the self-governing character of the municipalities. The municipalities have declared their willingness to participate in the creation of the development policy by forming their own associations for regional development. The emergence of the councils supported by the associations is a strong institutional stimulus for facilitating cooperation. The National Council, stated in the act, has also been created and is functioning.

The Ministry of the Environment and Regional Policy has created a National Agency for Regional Development within the framework of its competencies.

6. Financing of the regional development policy

6.1. National Fund

In 1992 the government established the Regional Development Fund. Decisions are approved by the Standing Committee on Regional Development, controlled by the Ministry of the Environment and Regional Development. For the purposes of regional development the following funds are being used:

6.1.1. State budget funds.

6.1.2. Other funding such as:

resources and budget funds for the development of the economy, employment and infrastructure;

portions of the ministries’ budgets, allocated for regional development programs and goals, defined in the central state budget;

those parts of various government funds, which can be used for regional development programs and goals;

specific/target assistance for helping municipalities in the development of urban areas.

6.1.3. Regional funds, available for regional development:

up to fifty per cent of central budget funding, allocated to the needs of regional development;

regional equality funds, administered by the municipalities and serving the purposes of municipal infrastructure development;

6.1.4. Other funding:

donations and loans made in assistance to regional development;

voluntary donations from economic organizations, chambers of commerce and other institutions directed towards regional development.

In 1997 the budget for regional development is approximately 10,4 billion forints, seven billion of which come from privatization, and this budget was increased by half a billion in 1998.

The budget for regional equalization for local authorities was increased from 8 to 9 billion forints in 1998, which are being used mainly through decentralized decision making mechanisms.

Anew element are the 4 billion forints in 1998 for decentralized special subsidies. The district councils for regional development are also included in these funds and they have taken the decision for using 18,5 billion forints.

This array of systematic instruments is completed by the corporate tax stimuli. In 1997 in the regions with high degree of unemployment and in the areas for enterprising investments were made for over 1000 million forints. A proposal was submitted to the Parliament for over 3000 million forints in support of investment. This will lead to ten year tax stimuli beginning 1998 for the socially and economically underdeveloped regions and their centers.

The Parliament adopted a decision for support of individual programs aiming to assist the development of the most poorly developed regions. The integrated program for restructuring of the Borsod-Abauj-Zemplens district, which is an industrial region in the process of restructuring, is the first step towards program funding.

7. Regional development and EU accession

The conclusion of the European Commission on Hungary’s request for membership (dating from July 15, 1997) is that the country will be able in a mid-term period of time to apply the rules of the European Community and to effectively utilize the resources from the structural funds of the union.

Country profile 3: Estonia

Table 1: General Information

Indicator Year Unit For The Country

Population 1997 persons 1 462 130

Territory square kilometers 45 227

Density of population 1997 persons per square kilometer 32

Unemployment 1995 % 11

Gross National Product (GNP) 1995 USD per capita 3 803

Size of the GNP 1997 % 9

Percentage of the average GNP of the EU countries 1995 % 22

Amount of foreign investment 1989/96 million USD 767 (third after the Check Republic and Hungary)

Import from the EU 1997 % 65

Export for the EU 1997 % 51

Number of municipalities 1998 % 254 (207 rural and 47 urban-NUTS 5) ₁₁

Number of regions 1998 15 (NUTS 4)

Capital city: Tallin 1998 population 420 000

Indicator	Year	Unit	For The Country
Population	1997	persons	1 462 130
Territory		square kilometers	45 227
Density of population	1997	persons per square kilometer	32
Unemployment	1995	%	11
Gross National Product (GNP)	1995	USD per capita	3 803
Size of the GNP	1997	%	9
Percentage of the average GNP of the EU countries	1995	%	22
Amount of foreign investment	1989/96	million USD	767 (third after the Check Republic and Hungary)
Import from the EU	1997	%	65
Export for the EU	1997	%	51
Number of municipalities	1998	%	254 (207 rural and 47 urban-NUTS 5) ₁₁
Number of regions	1998		15 (NUTS 4)
Capital city: Tallin	1998	population	420 000

Source: Estonian Statistical Board and the European Commission

1. Necessity for a regional development policy

Out of the three Baltic republics Estonia is the most northern one and one of the states that form the fast developing North European economic zone with a population of about 70 million people.

There is a clear territorial disproportion which become more deep in the transition to a market economy. Overall the northwest and southwest parts of the country are more developed that the rest. The southeast and northeast parts are less developed and backward - employment in Northeastern Estonia is strongly dependent on power industry, heavy industry and former Soviet military industry complex, whereas unemployment in Southeastern Estonia is due to the collapse of agriculture. Problem areas are the rural peripheries, the dissolving industrial centers and the small inhabited islands. These regions are more and more dependent on state support be it in form of social assistance, from the employment in the public sector, the state budget transfers to local budgets or state investment. The potential of the less developed regions is deteriorating because of migration leading to loss of potential for independent development of some regions, social degradation and increase of expenditures.

In comparison with Romania and Poland, whose network of urban areas is policentric, the urban network of Estonia is irregularly situated on the country’s territory, which impedes the measures for regional development.

The regional development policy faces the necessity to solve the following problems: -the growing differences between the center and the periphery in relation to economic development, income, employment, etc. The great concentration of people, economy, intellectual resources and institutional systems in the capital city of Tallin is already perceived as a specific problem of development - 420 000 people live there. According to data of the Estonian National Bank 71,7% of foreign investment in 1996 is made in the region of Tallin; growing unemployment in the rural regions;

the difficulties in the development of the regions along the east border as result of the worsened economic ties with Russia;

growing unemployment and other social problems in the regions that formerly hosted Soviet military bases, as well as the big industrial centers.

2. Legislative framework of the regional development policy

Estonia has implemented a relatively active and conceptual regional development policy. It was launched immediately after 1989 with the Concept for Self-Funding of Estonia.

In 1990 the government adopts the Principles of Regional Policy, and in 1991 were introduced the first instruments of the regional development policy - decrease of corporate tax, infrastructure investment in the remote regions, followed by state state grants for the ferryboat operators and the airlines to the islands.

In 1994 were introduced a number of additional instruments of regional policy - various subsidies in support of development projects. The government approved a framework document for the purposes and principles of the regional policy - the Principles of Regional Policy. Although it is not in the form of a law, this document has a key role for the development and implementation of the policy. In 1995 this document is viewed also by the Parliament. A Strategy for Regional Development of Estonia is at an advanced stage of development.

3. Goals and principles of the regional development policy

According the Principles of Regional Development, regional policy is defined as: targeted strategy, implemented by public bodies, aiming at development of all regions in the country, taking into account both regional and national interests. Regional policy is an element of national policy, which complements and connects sector policies.

The objectives of regional policy are to:

provide good living conditions for the inhabitants of all regions, including employment opportunities, access to basic services and an environment that is not harmful for their health and welfare;

ensure potential for economic growth in all regions, sustainable development and integrity of the national territory;

balance the dynamics of population with the development of the urban settlements in the regions;

The tasks of regional policy are :

creation of a favorable environment for enterprising in all parts of the country;

development of a national communications system;

assistance for the regions with restructuring agriculture economy;

guaranteed access of the whole nation to basic services (primary education, basic healthcare, communications, etc.);

creation of an accessible national data base, necessary for monitoring and control of regional development.

Strategic principles:

Regional development depends above all on local initiatives. The state works jointly with local residents, entrepreneurs and their associations, with local authorities and organizations. The state encourages the emergence and strengthening of local initiative;

Regional policy is executed mainly through state support and stimulation of the potential of local economies by using economic, infrastructure and social measures;

The most effective use of financial resources is ensured. The state above all coordinates the activities of the various institutions. The regional economic initiatives are temporary by rule. Permanent assistance to the regions is given exclusive cases

4. Regions, subject to the regional development policy

In reality almost then entire territory of the country, except for the region of Tallin, is a subject to the state regional policy.

Under the influence mainly of Finnish experience the idea of forming 4 to 5 macro-regions for the purposes of planning and implementing regional policy is discussed. Against this idea, however, there is the contrary argument that it is better to use for this purpose the existing districts, which are administrative units, instead of giving the responsibility for regional development and citizens’ welfare to some undefined units that lack institutional framework.

Regardless of their situation, the municipalities, the cities or any part of them can receive the status of a developing region for a definite period of time if they are threatened by a high percentage of unemployment or migration or apparently low living standard in comparison to other part of the country.

The status of a developing region can be given also in the case of other existing factors that seriously obstruct the social and economic development. The granting of such a status engages the government to implement additional measures for assistance. This status is given by the government upon recommendation of Ministry of the Interior. The proposals are drafted by the ministry upon the request from the respective district governor.

There is a conscious striving that the regions, which are recipients of various government programs, coincide with the types problematic regions that are subject of assistance from the structure funds of the European Union.

5. Institutional structure

5.1. Competent bodies on the national level

5.1.1. Responsible ministry

There is no separate ministry for regional development. The responsible ministry is the Ministry of the Interior. In 1994 in the government’s team was included a "no wallet" minister responsible for regional development with headquarters in the Ministry of the Interior, who is directly supervised by the Prime Minister. The minister does not dispose of resources for financing regional development, but he coordinates the funding governed by various other ministers. In this respect, as well as in many other spheres of political and public life, Estonia has adopted the experience of Finland. In the responsibilities of this ministry are included the police, national security, guarding of national borders, local administration and regional policy, statistical records (citizen registration), rescue operations, citizenship and immigration issues. Within the structure of the ministry there is a Department of Local Government and Regional Development.

5.1.2. Coordination of sector policies

The responsibilities for the execution of regional policies are concentrated not only in the Ministry of the Interior. It is considered that in this way far more resources can be drawn. The other involved ministries are:

the Ministry of Economy - responsible for small and medium business encouragement;

the Ministry of Agriculture - responsible for the policy concerning rural regions;

the Ministry of the Environment - responsible for the territorial and physical planning, i.e. regional development is clearly distinguished from territorial and physical planning;

Within the structures of these four ministries there are departments of regional policy.

5.1.3. The Council on Regional Policy was created in 1995 for the purpose of coordination of the various sector policies. In the council are included representatives of all ministries, as well as of the district governors and the local self-government bodies. The main task of the council is to improve the coordination among sector policies and to submit proposal to the government and to the separate ministries regarding issues connected with regional development.

5.1.4. The Estonian Regional Development Agency was established in May 1997 by the Ministry of the Interior. Its Board of Directors consists of 11 members, appointed for a term of three years. It includes representatives of the four ministries that are of key importance to regional development, the district governors, representatives of the municipalities and business associations. Chairperson of Board is the minister responsible for regional development. The agency manages the resources for the majority of the instruments of the regional development policy. Its primary task is to is the development and coordination of the activities, executed through the system for encouraging production and technical assistance for other regional policy instruments.

5.2. Bodies for implementing the regional policy on the regional level.

5.2.1. The role of the existing administrative bodies

Estonia is divided into 15 districts as bodies of state government. The district governor is appointed by the Prime Minister upon the proposal of local self-government bodies. His responsibilities are to:

represent the interests of central government in the district;

support the integrated and balanced development of the district;

coordinate the activity of the other state institutions, as well as of the municipalities on the territory of the region;

monitor and supervise the legal aspects of the activities and regulations of the municipalities in the district

In accordance with article 10 of the Principles of Regional Policy, the district governor is the executor of regional policy on the district level. In this respect Estonia probably mirrors the experience of Sweden. The district governors are responsible for the coordination of the sector policies, they observe the development of the district and implement national policy for regional development by executing the tasks that fall within the sphere of their competencies. They receive information on all measures concerning regional development and decisions, which affect the territory of the respective district. Together with the municipalities, public institutions and other interested parties, they formulate and implement programs and projects for local development. All districts have already developed their own programs for economic development. There is not enough clarity as to the extent these programs should answer the requirements of national policy and the participation of the representatives of the districts in the process of drafting the national program. In the structure of the district administration there is department responsible for planning.

5.3. There exist 17 Regional Centers for Stimulating Business, united in the Estonian Network for Business Support. Four of them are also business advisory services centers, created with the support of the Phare Program, and the rest are business centers. The perform the functions of agencies for regional development.

Through this system are implemented various measures for stimulating enterprise production. The target group consists of small and medium entrepreneurs. The state is funding by contracts the centers for providing a package of basic business services free of charge. These centers are at the basis of realization of three schemes of support: regionally differentiated scheme for subsidizing business consultations; a credit system for regional policy; subsidies ensuring representation of small and medium business at national and regional fairs.

5.4. Involvement of the municipalities.

There are 254 municipalities - 47 urban and 207 rural municipalities. Their responsibilities include primary and secondary education, local transportation, communal and social services, local roads and street network.

The municipalities do not financial capacity to implement certain measures on their own. In the municipal administrations there are departments on development, which are responsible for creating new jobs and developing the infrastructure.

6. Financing the regional development policy.

6.1 The funding necessary for the implementation of the national policy for regional development is provided by state budget. There is no ministry or department which is especially responsible for the budget funding allocated to the regional level. The distribution of funding from state budget is done as follows:

part of the money is planned and transferred to the ministries, responsible for the implementation of the respective measures and activities.

part of the money is provided annually together with the state budget allocation to the Estonian Regional Development Agency, and some of the instruments are financed directly from the state budget.

part of the money for regional development on the district level are included in the budget of the respective district.

part of the money in form of subsidies are planned in the budgets of the municipalities allocated for specific purposes in accordance with the law for defining the funding for municipal and city budgets.

6.2. Development fund under the auspices of the district governors. The use of the development fund for regional development activities is decided by the district governors and mainly activities of the public and non-government sectors are supported.

The regional governor takes decisions also regarding the allocation of funds of the Program for Support of Regional Investment in Social Infrastructure.

6.3. Fund for the regions experiencing economic crisis. The use of the funds for the regions in economic crisis is decided by special committees, created by the government on specific cases. The regionally differentiated decrease of corporate taxes is applied since the beginning of 1998 in all municipalities outside of Tallin. The scheme aims to encourage the investments in the rural and peripheral regions.

For 1998 the overall amount planned in the state budget for regional development programs is 78,367 million Estonian crones (8 Estonian crones equal to 1 German mark). Apart from these funds there are planned funds amounting to 136 433 000 crones, which are allocated for: the network for business stimulation; surveys in the sphere of regional development; harmonization of regional policy with regard to EU accession; the expenditure of the Estonian Regional Development Agency; loans for regional development; the local economic crisis fund; programs for the social infrastructure. The system for business stimulation is supported by the Phare Program. At the moment a third project in support of small and medium business is being conducted - the first such project began in 1993, the second in 1996, and the third in 1997.

7. Measures and instruments of the regional development policy - type, actions, rules.

the regionally differentiated scheme for subsidizing business consultation. The state subsidizes small and medium business by purchasing various business services from the centers (the entire package of business consultation, including financial analyses, business strategies, marketing, etc.). The centers function as intermediaries between the entrepreneurs and the consultants;

a credit scheme for regional policy. This instrument aims at the state taking a higher risk for the commercial banks and provide credits for the business in the rural regions without requiring the guarantees, which the commercial banks require or when the banks would not accept the given guarantees. Along this scheme there are provided credits for investment and for operating capital. The target group consists of small or medium enterprises or the business services sector. The proposals for giving funding to applicants are made by a inter-ministry body for decision making and by using additional expertise from the Centers for Stimulating Business.

subsidies, assuring representation of small and medium business at national and regional fairs.

Apart from that the centers provide basic services for starting businesses (free advice, low price training courses, access to information packages on How to Start Our Own Business).

Eight programs for regional development, which ensure subsidies for central and local authorities and for non-governmental organizations. These subsidies are not given to projects with commercial goals. The principle of obligatory co-funding of the project by the applicant is mandatory. The municipalities and the district governors must testify that all projects that will be funded are in accordance with local or regional priorities for regional development. The control and evaluation of the projects is done by the Estonian Regional Development Agency and by the director of the respective inter-ministry body responsible for the program. The separate programs are coordinated by the different ministries and coincide with the goals of the structural funds:

The Program for the Peripheral Regions aims to improve the physical and social infrastructure, to build local industry and enhance local economic basis in the agricultural regions.

The Program for the Multifunctional Urban Areas places the emphasis on urban areas with a large number of people employed in big industrial plants that in the process of restructuring. The program aims to ensure business development and, therefore, expansion of local economic basis, to improve the conditions for the development of entrepreneur initiative, as well as to support the development of human resource.

The Program for the Islands aims mainly at providing better living conditions on the inhabited islands with regard to prevention of migration of people from them. It is focused on the development of communications and physical infrastructure, power supply and provision of local educational services. The target area includes 11 islands.

The Setumaa Region Program aims to support this peripheral border region and to assist those Estonians, who formerly lived on the other side of the Estonian-Russian border, to move to live in Estonia.

The Program for Southeastern Estonia began in 1998. It aim to support various activities for development and projects with regard to ensure opportunities for independent development in the future, accentuating mainly on innovations. Its priority spheres are the development of human resource (training, research, support for innovations and NGO activities), building the region’s good image (marketing of the region, strengthening of identity and cultural diversity) and ensuring potential for development (business climate, networking and cooperation between development organizations, trans-border partnership).

The Program for Northwestern Estonia provides new commercial links and integration to immigrants from outside in Estonian society. This region has been dominated by big infrastructure enterprises for extraction of oil schist, production of electric power and industrial goods mainly for the Russian market.

The Program for the Border Regions aims to encourage trans-border cooperation and international trade links. The major part of the support is provided in the form of Estonian co-financing of project for trans-border partnership.

The Program for Rural Development is focused on improving local initiative mainly in the form of projects for development of inhabited areas, as well as joint projects.

In March 1996 the European Commission officially approved a Phare Program project for support of regional development in Eastonia. The project is managed by the Dutch Economic Institute (NEI). The duration of the project is two and a half years. The purpose is to assist the drafting of a strategy for regional development of Estonia and to reach consensus on the principles of the strategy and the measures for its implementation. Other important goals are the creation of a trustworthy regional database and the execution of pilot projects in the target regions.

8. Regional policy and EU accession

The forming of the policy, the institutions and the instruments are under the strong influence of the regional policy model applied in Finland and to a lesser extent in Sweden. In the period of time after taking a decision for staring negotiations for accession, all measures and actions are directed towards full accordance with European practice and the objectives of the structural funds.

In the statement of the European Commission upon the request of Estonia for EU membership, the following evaluation concerning regional policy was given:

the financial resources for regional development initiatives are too limited and need to be increased;

the procedures for ensuring coordination among ministries should be improved;

there should be established administrative and budget procedures with regard to the ability to use the resources of the structure funds.

The general conclusion, expressed in the Statement of the European Commission, is that Estonia possesses the necessary administrative and budget framework and if it creates adequate structure for financial control, it will be in a position to use efficiently the regional and structural funds in support of its own effective development.

The review of the efficiency of the measures of the regional policy in Estonia, requested by the Estonian Regional Development Agency and finalized in the beginning of 1998 states that:

the significance of regional problems is not very clear;

the regional development programs partially coincide; the principles and the importance of the programs are not clear; there is no clear and institutionally precise and defined system of measures

the regional policy is too centralized, and the role of local authorities remains weak;

among the financed projects, there are many that are not related to regional policy in its traditional outlook;

the place given to the issues of employment small and unsatisfactory;

the role of the cities in the regional development and regional policy of the country is not clear;

there is no system of evaluation of the assistance according to regions, and because of that many of the projects have not attained their goals and objectives;

Bibliography:

Regional policy guidelines, adopted by government on Dec. 13, 1994.
Regional policy in Estonia, Ministry of Internal Affairs.
Newsletter N1, June 1998, Estonian Regional Development Agency.
Overview of the Estonian regional development policy, Speech, Mr. Peep Aru, Minister of Regional Affairs, Estonia - International Conference on EU Accession and Regional Development (June 15016, 1998)
Karin Jaanson, Tartu County Government, Estonia, "Regional Perspectives and Dilemmas", Speech, International Conference on EU Accession and Regional Development (June 15-16, 1998).
Regional problems and policies in the Baltics and Kaliningrad, draft, Working Party N 6 on Regional Development Policies, Organization for Economic Cooperation and Development.

Country profile 4: Finland

Table 1: General Information

Indicator Year Unit For The Country

Population 1997 5 147 349

Territory square kilometers 338 145

Density of population 1997 persons per square kilometer 17

Unemployment 1997 % 12,6

Unemployment June 1998 % 12,0

Inflation 1997 % 1,2

Size of the GNP 1997 % 6,0 (1996 - 3,6%)
2,6% for EU

Gross National Product (GNP) 1996 USD per capita 24 207

Percentage of the average GNP of the EU countries 1995 % 91

Number of municipalities 1997 452

Number of provinces 1998 12

Indicator	Year	Unit	For The Country
Population	1997		5 147 349
Territory		square kilometers	338 145
Density of population	1997	persons per square kilometer	17
Unemployment	1997	%	12,6
Unemployment	June 1998	%	12,0
Inflation	1997	%	1,2
Size of the GNP	1997	%	6,0 (1996 - 3,6%) 2,6% for EU
Gross National Product (GNP)	1996	USD per capita	24 207
Percentage of the average GNP of the EU countries	1995	%	91
Number of municipalities	1997		452
Number of provinces	1998		12

Source: Center for Statistics and the European Commission.

1. Necessity for a regional development policy

After its accession to the European Union, Finland became the most northern and most eastern member state. Together with Sweden it forms the furthest north region of the Union, which is very different from the other member states by its geographic and climate specifics. ₁₂

In a country like Finland, where the density of population is small and varies in the different parts of the country (from 136 inhabitants per square km in the Uustimaa province to 2 per sq. km in Lapland), the distances are great, the inhabited places are scattered, and the climatic changes are drastic (hot summers and cold winters), the actions directed towards balanced regional development are extremely needed. Approximately one forth of the population of the country is concentrated in the region around Helsinki (3% of the territory with population density of about 120 persons per sq.km). The island regions are among the most particular problems of the country.

Until the 1980-ies the isolated and barely inhabited regions of the country together with the rural and island regions have been the main subject of attention. At the beginning of the 1980-ies the problems of some failing industrial regions call for taking of special measures. Regional centers were created in order to balance the growing capital region. During the last decades the regional policy has evolved from a policy of industrialization of the developing regions towards an overall national policy of regional development.

The latest stage in the regional policy development in Finland is a result of the country’s accession to the European Union. The EU accession, and the necessity of the country to comply with the structure policies of the Union, as well as for using the resources from the structure funds, led to the implementation of a regional policy, which to ensure competition fitness of Finnish economy within the framework of competition rules and state subsidies for the economy.

2. Legislative framework of the regional development policy

The first law on the developing regions dates from 1996. The current Regional Development Act was enacted on 1 January, 1994 ₁₃ . The purpose of the act is to assist for the independent development of the regions in Finland and for the balanced regional development. Meanwhile the act was being prepared, Finland began the negotiations for accession, which influences its contents. This influence is expressed in a regional development, based on the Program Objectives of the European Union, strengthening the role of the regions and adaptation of former assistance policies to European rules for sate support.

The government became entitled to define the target programs and their coordination (art. 4); the subsidies, payments and control on expenditure of the resources provided by the government (art. 6); the classification of the development regions (art. 7) and other duties.

3. Goals and principles of the regional development policy

The regional policy aims to provide ₁₄ :

living conditions and access to important services;

basic infrastructure, which is necessary for regional development;

improvement of the product infrastructure of the regions, the opportunities of the companies to function and ensure new jobs;

strengthen the basis of the economy in the regions;

4. Regions, subject to the regional development policy

The regional policy in Finland is implemented in regions which are not administrative units, and do not coincide with the existing provincial administrative level and are formed especially for the implementation of the regional development policy. For this purpose the municipalities formed the so called Regional Councils (see item 5.2.2. of the current report), which function on the territory of the member municipalities. The forming of larger, non-administrative regions as a subject of regional policy is connected on the one hand with the necessity to comply with the requirements for use of the Structure Fund resources, and on the other, with the will to give true opportunities to the municipalities to participate in the implementation of the regional development policy.

The territory of the country is divided into two types of areas, which intersect each other:

4.1. regions, where national target programs are implemented;

The Regional Development Act provides the opportunity to the government to define the least developed regions as development zones depending on their level of development and their needs. The development zones include three areas of support (I, II and III). According to the status of the zone is defined the needed assistance for the regions and the resources for this purpose are allocated. In addition, the sub-regional units or the municipalities, in which considerable changes in the product structure of the industry or the services sector lead to great increase of unemployment or threaten to cause other severe problems, can be defined as regions with structure changes for a certain period of time. The percentage of the population living in the development zones is 31 (12,7% in area I, 12,8% in area II and 5,5% in area III). 10,6% of the population lives in regions with structure changes.

4.2. regions, where the target programs of the EU are implemented.

The greater part of country’s territory, where 53,6% of the population is living, is covered by three European Union objectives with regional character - Objectives 2, 5b and 6 (see item 8 of the current report). Objective 2 is being implemented in 8 (out of the 20) regions of the country, which have common problems caused by the change in their industrial structure, as well as their equal opportunities to develop the regions by means of location and logistics. Objective 5b is implemented in 14 regions with population of 1,1 million people and territory of 95 000 sq.km, and Objective 6 is implemented on 60% of the country’s territory with population of 840 000 and density of population of only 4 persons per sq. km.

5. Institutional structure

5.1. Competent bodies on the national level

5.1.1. Responsible ministry

According to the Regional Development Act, the responsibility for the regional development is shared between the state and the municipalities. There is no special ministry on regional development. The Ministry of the Interior, according to the law, is responsible for the coordination, drafting and evaluation of the programs for development and the projects for regional planning, coordinated with the other ministries. Within the structure of the ministry, apart from the title minister, there is also a "no wallet" minister, who is responsible for the administration and regional policy. The responsibilities of this ministry include the immigration issues, rescue operations, border security, national police, regional development, municipal issues.

5.1.2. coordination of sector policies.

Due to the considerable degree of decentralization of the regional development policy in Finland, no advisory council, agency or other body on the national level exist. The ministries are obliged to negotiate with the Ministry of the Interior the measures in their sector, which would have significant impact on regional development.

The sector measures of development are taken respectively by the Ministry of Agriculture and Forestry, the Ministry of Transportation and Communications, the Ministry of Labor, and the Ministry of the Environment. The majority of the ministries have delegated their responsibilities to their regional bodies. The division of the responsibility for regional development among various ministries, characteristic for Finland (such division exists also in France and Italy), encourages the implementation of an integrated regional policy.

5.1.3. The national administrating of the target programs of the structure funds for development is guided according to the distribution of tasks between ministries. The Regional Objectives 2, 5b and 6 are administered by the Ministry of the Interior, Objectives 3 and 4 by the Ministry of Labor and Objective 5a - by the Ministry of Agriculture and Forestry.

5.1.4. The national development programs are monitored and evaluated by a Monitoring Committee with representatives of the European Commission, central administration, the respective regions, the Association of Local Authorities in Finland, as well as of economic and social partners.

5.2. Bodies for implementing the regional policy on the regional level.

5.2.1. The role of the existing administrative structures

The provinces represent central administration at the regional level and execute control over the activity of the municipalities. At the provincial level there is a provincial council, directly elected by the people.

The provincial structures do not have a major role in the implementation of the regional development policy. Distinction is made between state regional administrative bodies and the bodies for regional development. The regional administrative bodies take on the functions related to regional development only in the case when certain regions do not have a regional council or if a certain territory is not encompassed by any regional council.

5.2.2. Regional Councils and Agencies

Regional development is implemented by the Regional Councils. They are created by the municipalities, express the region’s needs and are the main focus of regional development in the respective region. The existing 20 regional councils direct and coordinate the planning and execution of both the national programs and the programs of the European Union in the respective region ₁₅ .

The regional councils are advocates of the regions and serve the regions, the member municipalities, the inhabitants and the corporations, by working directly with them in order to establish the goals and strategies for development of the region and to work out a regional policy for use on the region’s territory ₁₆ .

The regional councils are responsible for the regional planning policy, the preparation of regional development programs, including control over their execution, coordination of the measures for regional development (these functions are defined in the Regional Development Act) and their goals are to:

improve the living conditions of the population;

assure access to important services;

create the infrastructure, necessary for regional development;

develop the product infrastructure of the regions, to create a suitable climate for private enterprising and to ensure the creation of new jobs;

strengthen regional economies;

improve the professional skills of the population.

The measures for regional development are coordinated in programs for regional development, which are drafted under the auspices of the Regional Councils, in cooperation with government and local authorities, the business, universities, research centers and non-profit organizations. The programs are implemented through program agreements, in which the participants take the responsibility for the achievement of the purposes, projects and measures and to assure their share of the funding.

The main activities of an exemplary elected Regional Council include:

planning and execution of a regional development program and advocacy of the regional interests in the process of decision making at the national level;

support for the education, research, technology and culture, improvement of human resources;

planning of the regional structure, the use of land, community development and commerce;

development of public administration, services and the economy;

international cooperation - the regional councils represent the respective region in front of international organizations.

The governing bodies of the regional councils usually consist of: a Council of Representatives, which includes elected representatives from all municipalities in the region (the number of representatives of the separate municipalities is different and depends on the number of population); a Board of Directors (an executive and administrative body); and an Executive Director.

The role of the municipalities:

Similarly to other northern countries (such as Denmark, Sweden, Ireland), the municipalities play a central role in the implementation of the regional development policy.

The responsibilities of the municipalities concerning regional development are established by the Regional Development Act. The municipalities are given the opportunity to create Regional Councils for Regional Development as an inter-municipal body, responsible for the regional development of the respective territory.

6. Financing the regional development policy.

The Regional Development Act envisions the planning of resources for the purposes and programs for regional development in the yearly state budget. It is peculiar that these resources are provided from the state budget to a certain fund, which operates with them, but they are provided in the budgets of the various ministries, which allocate these resources. The use of these resources in the regions is coordinated and channeled in program agreements (see item 7 of the current report). The financial assistance for the accomplishment of the goals of regional development has been directed towards projects for business development, connected with the programs for regional development, public investments and the provision of important services to the population.

Part of the resources for regional development are allocated by the Ministry of the Interior according to regions. Then the regional councils define the use of the given resources for their own region. The ministry can allocate part of the resources for development projects concerning more than one region or for regions of national importance. The state subsidies, payments and control are arranged in detail by the government. In addition to that, every year the Council of Ministers defines the principles for allocation of the resources for regional development towards the various sectors of government.

The resources, received from the structure funds are registered in the state budget in the respective budget items for the ministry coordinating the income and expenditure of the budget. The coordinating ministries (Ministry of the Interior for the European Regional Development Fund; the Ministry of Labor for the European Social Fund; and the Ministry of Agriculture and Forestry for the Fiscal Instrument for the fishing industry and for the Agriculture Fund) resend the resources to these ministries, which have responsibilities concerning the implementation of the measures and to which national financial contribution is provided in the state budget. The state, the municipalities and the entrepreneurs provide co-funding resources.

7. Measures and Instruments of the Regional Development Policy - type, actions and rules.

The measures for regional development are oriented towards special target programs with clearly defined duration. The resources for regional development in the state budget are allocated to different branches of the administration. They are used for support to the implementation of programs for regional development, corresponding to the special target programs. Part of the resources planned in the budget are allocated to programs, co-financed by the European Union (see item 8 of the current report), whereas another part of them is planned for the implementation of national programs ₁₇ , such as:

The Program for Regions with Structure Changes - it is implemented in the regions with structure changes with the purpose of diminishing problems, caused by the structural changes in the industry and services sectors;

The Program for the Rural Regions - it is implemented in the whole country. Its aim is to revive the rural districts by increasing the income and the quality of services for the people living in these regions and to improve the competition capabilities and attractiveness of the rural districts for living and business;

The Program for the Island Regions - it is implemented in certain island municipalities (14 island municipalities and 36 partially island municipalities) and its purpose is to ensure the basic services and means for living of the population, as well as to protect the archipelagoes from the threats to their environment;

The Program for the Border Regions can be implemented in the whole country. Thanks to the close cooperation with the neighboring countries, the western part of Finland has traditionally close contacts with Sweden and Norway. The national resources are directed towards cooperation with Russia, the Baltic states and Estonia in particular.

The Center for Expertise Program is a program for regional development, based on Finnish expertise. Its aim is to improve the opportunities for establishing and development of international competitive business activity, requiring expertise. The program supports regional specialization and further develops the division of tasks among the centers. The program places an emphasis on close cooperation between the universities, the research and technology centers, the entrepreneurs and administration. The Council of Ministers has defined 11 expertise centers, of which three are working in a network, in cooperation with a number of regions and organizations (for e.g. centers for expertise on the development of the food industry, for tourism, forests and the forest industry).

In every separate region a Long-Term Development Plan (for 10 to 15 years ahead) and a Regional Development Program (a short-term plan).The law requires that the regional administrative bodies request from the bodies for regional development (the regional councils) report on their plans, decisions and finances, which are of great significance for the development of their territory. The regional administration bodies are obliged to take into account these plans in their own work. If they intend to divert from the plans, this happens only after preliminary negotiations with the Regional Councils.

Program Agreements

On the basis of the regional development program, the state, the municipalities and the corporations, which participate in the funding, can reach, with the leading role of the regional development bodies, agreements clarifying the major projects, which will be implemented in each region, the deadlines for their accomplishment, as well as other measures. In this agreement the participants negotiate their financial contribution to the measures that are part of the regional development programs. The development councils, together with the state administrative bodies locally coordinate state funding mentioned in the agreements. The state bodies have the right to engage themselves with definite funding only within the limits of the resources, planed in the state budget for this purpose.

The maximum amount of funding given to the companies in the development zones or the regions with structure changes is arranged by the Law on Support for the Business. The maximum amount of funding from the state can be up to 70% of the overall cost of the project.

8. Relationship between the Regional Development Policy and the structure policies of the European Union.

The target programs of the European Union are implemented by accepting the principle of partnership. In each region there exist a Council for Partnership, which deals with the measures, co-funded by the structure funds and ensure their compliance with the Target Programs. Individual projects, directed to support for the business, are organized by the Task Force in Support of Business, working under the control of Business Departments of the Ministry of Industry and Commerce.

The European regional and structural policies on the territory of Finland are being implemented through the following regional goals:

Objective 6 - Development of regions with extremely low density of population. It is created especially for Sweden and Finland after their accession to the European Union. It has three main priorities: the development of the business and the companies’ competitiveness; the development of human resource and expertise; agriculture, forestry, fishing rural development and the environment.

The quantitative expression of the results from the implementation of the program are:

decrease of unemployment in the regions by 2,1% and by 8 000 units per year;

creation of 17 500 new jobs in the private sector;

decrease of the gap between the GNP per capita of these regions and the national GNP by 5%, from 20% to 15%;

creation for new jobs for women and young people.

The overall amount of resources for Objective 6 for the period of 1995-1999 is 459,9 million ECU, distributed according to the number of population in each region.

Objective 2 - Development of regions, seriously afflicted by industrial collapse. It has three main priorities: growth, development and internationalization of the business activity; increase of the level of skills and technology, supporting economic activity; development of the structure of the community, the environment and culture.

Quantitative evaluation:

contribution to the creation of approximately 15 000 new job positions or restoration of the existing ones;

decrease of unemployment by 2,8%.

For the period between 1997-1999 the program will be funded with 133,5 million ECU.

Objective 5b - Development and structural adaptation of rural regions. Its priorities are: stimulation of enterprising, diversification of primary production; increase of the level of know-how; development of village municipalities.

Quantitative expression:

creation of 22 000 new job positions;

increase of the number of enterprises to 6 000, which means by 3 000 more.

In addition, on the territory of the country are being implemented the following objectives of the European Union:

Objective 3 - coping with long-term unemployment and facilitating the integration of young people;

Objective 4 - facilitating the adaptation of employees to the changes in industry;

Objective 5a - facilitating the development and structural adaptation of the rural regions.

Between 1995 and 1999 the country has received approximately 1,7 billion ECU from the Structural Funds. Nearly half of them are directed towards regional goals. The regions corresponding to Objective 6 receive about one third of this support.

Country profile 5: Poland

Table 1: General Information

Indicator Year Unit For The Country

Population 1996 38 549 800

Territory square kilometers 312 683

Density of population persons per square kilometer 123,4

Unemployment 1997 % 10,5

Inflation 1997 % 13,2

Size of the GNP 1997 % 6,9

Gross National Product (GNP) 1997 USD per capita 6 900

Percentage of the average GNP of the EU countries 1995 % 31

Import from the EU 1997 % over 70%

Export to the EU 1997 % over 70%

Number of municipalities (gminas) 1998 2 459 (NUTS 5) ₁₈

Number of regions (voevodstva) 1998 49 (NUTS 3)

Number of districts after 01.01.1999 308 + 65 city districts (NUTS 4)

Indicator	Year	Unit	For The Country
Population	1996		38 549 800
Territory		square kilometers	312 683
Density of population		persons per square kilometer	123,4
Unemployment	1997	%	10,5
Inflation	1997	%	13,2
Size of the GNP	1997	%	6,9
Gross National Product (GNP)	1997	USD per capita	6 900
Percentage of the average GNP of the EU countries	1995	%	31
Import from the EU	1997	%	over 70%
Export to the EU	1997	%	over 70%
Number of municipalities (gminas)	1998		2 459 (NUTS 5) ₁₈
Number of regions (voevodstva)	1998		49 (NUTS 3)
Number of districts	after 01.01.1999		308 + 65 city districts (NUTS 4)

Source: Central Statistical Office, European Commission, Polish Agency for Regional Development

1. Necessity for a regional development policy

Poland in the biggest in territory and population among the countries, candidates for EU membership (See Table 1). In spite of this fact, according to the evaluation of Polish Agency for Regional Development, there are no great regional differences in the country. There is a well balanced distribution of small and medium sized towns, and the difference in the GNP between the richest and poorest regions is in a proportion of 1:3. The conclusion that the regional differences in the quality of life between regions are relatively small, is contained also in the comparative analysis of the regional development in Poland and Romania, prepared by the Organization for Economic Cooperation and Development. As a especially favorable is judged the policentric structure of the urban settlements and the economic system connected with it, which allows the effective use of the regional policy instruments .

Until he end of 1989 government policy aims at diminishing main regional disproportion, but keep no account of the efficiency of the investments. ₁₉

During the first several years of the transition from centralized to a market economy the macro-stabilization is a major priority. The former mechanism of reallocation cease to exist. The only measures that have a regional character are the assistance for the unemployed in the municipalities, threatened by structural unemployment. In a situation like this regional policy was of marginal importance. Most actions in this direction were performed in a uncoordinated way, and the bigger programs for regional development were implemented solely with resources coming from foreign aid. The concentration of the efforts of the social and economic policy on the macro-economic stability and the conviction of the government that regional differences are insignificant, contribute to the low interest in the regional development policy. The emergence of high unemployment (up to nearly 30% in the regions of Olstin, Slupsk, Suvalki and others in 1994), the sharpening of the existing differences and emergence of new regional disproportion lead to the reassessment of certain elements of the general economic policy, with the conviction that the structural changes in economy need the support of an active regional policy, because the spreading of the situation in the separate regions may threaten the processes of transformation as a whole. Finally in 1993 the idea for establishing some instruments of regional policy received support, expressed in the creation by government of the Polish Agency for Regional Development.

The regional differences in Poland are due to the following factors: ₂₀

the level of industrial and urban development. It is highest in the southwestern part of the country and lowest in the northeastern part with a few exceptions (the capital of Warsaw, the second biggest city in the country’s center, Lodz, and Shchechin in the northwestern part, which are industrialized cities). In the western part there exists qualified workforce, better infrastructure and better developed industry, there the is the greatest number of small and medium enterprises, and the majority of foreign investors, unlike in the rural less developed regions in the eastern part;

the demographic and agricultural structural differences lead to the situation where in the northwestern parts as a whole are living young people and three exist more private economic structures, compared to the northeastern parts of the country, which is heavily dependent on agriculture, the education level is low, the infrastructure is weakly developed, and the industry and services are concentrated in isolated centers.

the differences between the villages and the cities, which are a result of the fact that the cities are the main center for industry, while industry is the main factor contributing to the social benefits and to the infrastructure development.

The Polish experience in the sphere of regional development is interesting because of the definite emphasis given to regional policy, which helps the regions to increase the efficiency and ability for competition, and, therefor, of the economy as whole. The regional policy is concentrated on support for the ability for competition in individual regions, assistance for the overall restructuring of the zones, which are at risk of losing their basis for development, and creation of conditions for maximum use of the opportunities and resources of the rest of the regions. The traditional role of regional policy as an equalizing factor is left as a secondary concern. It is believed that the controversies of the processes of increasing regional differences are too expensive and unproductive with regard to the policy for the development of society and the economy.

2. Legislative framework of the regional development policy

There is no special law on regional development adopted in Poland. A team of experts have already began working on the creation of such law, although there are on-going debates on whether this law is a necessity.

In 1995 on the joint initiative of the Polish government and the European Commission a task force on regional policy was created, which in 1996 developed a diagnostic report and strategic concept of for regional development in Poland ₂₁ . In 1997 a team on Polish structural policy published its recommendations, also connected with the policy for regional development.

3. Goals and principles of the regional development policy

The priorities of the Polish regional policy, developed by the Polish Agency for Regional Development, include:

control of regional differences;

decrease in unemployment;

stimulation of competition;

development of infrastructure;

technological development

4. Regions, subject to the regional development policy

The problem regions, where the regional development programs are being implemented coincide with the types of problem regions, supported by the structural funds of the European Union and specifically those coinciding with Objectives 1, 2 and 5b. A clear procedure defined by government for identifying these zones, however, is lacking, as well as clarity about the consequences of granting the status of a development zone.

5. Institutional structure

5.1. Competent bodies on the national level

5.1.1. Responsible ministry

It was not until 1998 when the shared responsibility concerning regional policy were delegated to the Minister of Economy and the Minister responsible for the Government Center for Strategic Research. The ministry develops short-term and mid-term economic and social programs of general, sector and regional character and also deals with regional policy in the framework of its overall responsibility for the country’s economy.

5.1.2. In the period between 1993 - 1996 the coordination of inter-regional policy was performed by a governmental advisory council on regional development and on the development of rural regions. Its activity, however, is evaluated as not quite effective, because it was strongly influenced by political changes and the reorganization taking place in state administration during that time.

5.1.3. The Polish Agency for Regional Development was created in 1993 by the government. Its mission is to develop, stimulate, support and supervise regional economic development together with the agencies for regional development and other institutions with regard to the achievement of an independent regional economic growth. ₂₂

The strategy of the Polish Agency includes the following objectives:

to encourage initiatives, aiming at economic growth in the regions, which are economically weak or which need structural transformations, or which face strural unemployment;

to support the development of information and consulting services, training programs, academic and technology research, relating to the methodology and forms of regional growth;

to create and contribute to the creation of financial institutions, stimulating regional growth;

to grant financial and other assistance to the organizations, which facilitate the changes in the economic structure of the regions.

The Agency achieves its objectives by executing a number of programs ₂₃ in regions, identified by the government (17 out of the total 49 regions), the overall cost of which amounts to 135 million ECU since 1993 to the present day. The activity of the Agency is monitored by a Board, representing the main ministries and gevernment institutions. It works in cooperation with state bodies and other institutions, including the regional development agencies.

5.2. Bodies for implementing the regional policy on the regional level.

5.2.1. The role of the existing administrative structures

involvement of the municipalities:

The municipality is currently the only territorial unit for executing local self-government. The municipalities have considerable rights and play an active role in the implemntation of development projects, in spite of their strong dependence on state budget. In particular, they can develop local programs for development, cofunded by their own budgets.

The districts (voevodstva) are responsible for the overall execution and coordination of the development initiatives of the sector ministires on the respective territories. In spite of that their abilities for running programs for regional development are very limited. They can not form their own budgets, and the lack of elected bodies at the regional level (the members of the regional assemblies are elected from the municipal councils) with own budget also limits their functions (the district governors are appointed by the Prime Minister on the proposal of the Minister responsible for administration).

In the present time is running the preparation for execution of administraive-territorial changes, which will eliminate one the main obstacles to regional development, namely the lack of decentralization. Unification of the current districts (voevodstva) and the creationg of new lagrer regional units (beteewn 12 and 17 overall) ₂₄ is planned. The new larger regions which will governed by regional governors and directly elected regional councils will be able to form their own budgets and will be economically stronger. An intermediary (district) level of self-government ₂₅ is also under creation.

5.2.2. Regional Development Agencies

A fundamental premise for the successful local economic development is the acknowledgment that those who live, work and invest in the community should be engaged in the initiatives of their region. Until the present time there are created 63 regional development agencies. The first agencies were initiated, created and financed by the center with considerable help from the government bodies , while those founded later are created by local partners and local financial sources.

The regional development agencies in Poland are non-governmental institutions with public character (because of the dominating number of public state holders) aiming at the development of specific regions.

Typical tasks and responsibilities:

development of the regional economic activity;

creation of new jobs and support for keeping the existing jobs;

assistance to regional restructuring;

training and consulting activities.

The legal status of the agencies is foundations, limited liability companies or stock companies. The agencies are: regional (covering the territory of one or more voevodstva) or local (functioning on the territory of one or several municipalities). Their number at present is 63 and 49 of them are regional agencies. The overall capital of these agencies is 24 million dollars. They do not receive support from state budget. Their main source of funding is the income from their own activities.

Profile of the typical regional development agency:

capital amounting to 200 000 - 400 000 USD, which in 1997 grew two to three times more;

personnel: 7 to 12 people;

Stock holders:

the state with a share of 50%

the industrial development agency with a share of 15%

municipalities ₂₆ with a total share of 9%

banks with a share of 3%

state companies with total share of 3%

private entrepreneurs with total share of 1%

other - 15%

Obstacles for the function of the agency:

lack of capital and resources for funding development activities;

legal barriers, limiting the opportunities for cooperation with the public institutions;

institutional barriers;

they are charged with the same amount of taxes like profit companies;

6. Financing the regional development policy.

Together with the lack of suitable administrative structures, the limited financial instruments for regional development initiatives are subject to criticism also in the Statement of the European Commission on the request for accession.

The activities on regional development are funded mainly by means of international programs (refer to Table 2).

Table 2

Funding for regional policy	Amount	Percentage
from state budget	129,8 million zloti	35,3%
from Programs of the European Union	238,3 million zloti	64,7%

Source: Report on regional policy (B: The EU Phare-STRUDER Programme and unemployment, Polish Agency for Regional Development).

The separate EU programs, implemented in Poland are funded as follows:

Phare-STRUDER - 76,7 million ECU

Phare-RAPID - 20 million ECU, out of which 5,05 million were reallocated to assist programs for overcoming the consequences of the floods in 1997;

Phare-STRUDER II - 5,3 million ECU;

Phare-INRED - 15 million ECU;

Polish-Swedish Regional Program - 9,5 million ECU.

7. Measures and Instruments of the Regional Development Policy

The Phare-STRUDER Programme is funded by the EU program for structural development of selected regions. The program was developed on the basis of the programs of the structural funds of the European Union and provides support for restructuring to selected regions in Poland, through support for institutions and activities, through stimulating the creation and development of small and medium business. The program was implemented in the period between 1993 and 1997. It covers six voevodstva, selected in accordance with the priorities of the Polish regional policy, defined by the government after consultation with the committees of the European Union. The regions were selected so as to be representative of all problems and dilemmas in front of regional development and corresponding to Objectives 1, 2 and 5b of the EU (the majority are different and non-correspondent from social and economic point of view). The common feature of all voevodstva chosen for inclusion on the program, is the existence or the threat of emerging high structural unemployment. During the period of 1993 - 1997 the unemployment rates in several of these voevodstva has considerable decreased - with 11,1% in Olstin and with 10,3% in Suvaki given that the general unemployment rate for the entire country for this same period has decreased by 5,8%.

The program contains four groups of instruments:

Support for structures dealing with regional development.

First of all the support goes to the agencies for regional development and they are provided with high quality equipment and training of personnel. Also assistance is given to business institutions, foundations, that stimulate business; also to centers for enterprising, business incubators, business associations, chambers of commerce, etc. The funding allows the beneficiaries to increase the quality of services, to increase their personnel, and to finance and co-finance their activities directed towards regional development (surveys, collection of a database, organizing workshops, etc.). This assistance makes it possible for the agencies to participate successfully in local and regional sructures, to create their own positive image and to become a reliable partner to small and medium business, to municipalities and other institutions.

This instrument funds completely or partially also projects aiming to represent the region and its economic, social and cultural advantages. This includes also the organization of regional fairs, exhibitions and other events.

Training and consulting services.

The objective of this instrument is to increase the quality of the skills and the capacity of the people involved in the process regional development and restructuring, individual training and consulting services for regional development institutions.

Fiscal instruments.

Investment scheme for support to small and medium business. Through it 1051 investors have received additional funding. With the help of this scheme were created 11 000 new jobs. 30,7 million ECU were provided as co-funding amounting to 25% of the overall investment, meaning that the overall investment is 130,9 million ECU. Support is given to companies which are already established on the market. Most of them are connected with local markets.

Regional Investment Funds - the funding is given to small and medium enterprises, which are comparatively new and are not well established on the market. The funding is provided in the form of participation in the capital of small and medium enterprises with minority shares between 15% and 49%, or through secondary loans. The overall sum of the participation of the funds in a single project is between 50 000 and 500 000 ECU and with duration of 3 to 7 years. Through providing the money, the funds become co-owners and they leave the enterprise after some time by selling their stocks. In this way the funds have the opportunity to reinvest in other enterprises.

Guarantee scheme - its aim is to assist and support economic activity through granting guarantees for small and medium business, whose investment projects are implemented in regions covered by the program, but cannot, however, be realized due to the lack of guarantees for the credits requested from banks. The existing scheme allows the increase of the credit amount and, therefore, to increase the investments in small and medium enterprises in the spheres and industry and services. The guarantees are granted only for the purposes of the implementation of investment projects in selected spheres such as: mining, industrial enterprises, power industry, gas and water supply, construction and maintenance of mechanical means of transportation, construction and modernization of hotels and restaurants, transport, shops and others. Guarantees are given to companies, which employ up to 100 people, have no obligations to the state, have good investment projects whose overall amount, including the working capital, is less than 400 000 ECU per one investment project.

Small infrastructure projects - assistance is given mainly to municipal projects concerning the development of infrastructure, which increase the potential of the region (roads, local transportation, investments in the environmental infrastructure, etc.), and also for development of small and medium business by creating appropriate milieu (business incubators, centers for innovative technologies and others) ₂₇ .

Phare-STRUDER II Programme with duration from 2 June, 1997 to 31 December, 1999. The program covers 10 regions (voevodstva), included in Phare-RAPID and four new ones having the following components:

Development of institutions, strategic planning and training - above all the aim is to provide support for the development of regional strategies of the four new regions and training programs for the managers of small and medium enterprises;

Financing of infrastructure projects - assistance is offered in the form of donations to municipalities for development of small local infrastructure. Resources amounting to 0,3 million ECU per project are given, which could be up to 50% of the entire cost of the project.

Execution and technical assistance.

The Polish-Swedish Regional Program focuses efforts on the economic development of family business in selected rural regions on the municipal level.

The Phare-RAPID Programme (duration: September 1996 - December 1998) support the further infrastructure development of the regions that are already supported by the Phare-STRUDER Programme, and four additional rural regions. The program also supports the development of regional strategies in these regions and the drafting of regional policy and evaluation of regional development on the central (national) level.

The main objective of the program is to reduce regional differences through support of infrastructure development of the selected regions, whose social and economic development is behind the nation’s average.

The programs consist of the following components:

Support for the regional institutions and the development of integral, multi-sector programs for transformation of the regions;

Co-funding of small infrastructure and public works projects. In addition to the infrastructure for small and medium business, the project funds also small municipal infrastructure projects.

The Phare-INRED Programme for Regional Development (duration: May 1998 - December, 1999). Through this program an integrated approach will be ensured towards local and regional development, through support for activities directed to specific regional priorities, that will be identifies in the regional strategic plans. It is beign implemented in four regions (or 17 voevodstva) and aims to prepare them for effective and efficient use of the structure funds of the European Union.

There will be co-funded the implementation of selected projects. Two components:

development of regional institutions - the emphasis is placed mainly on the development of the institutions and human resource with regard to increasing the potential of the regions to accumulate in the future resources from the Structure Funds;

development of the Malopolski region.

8. Regional Development and EU Accession

Poland has been often criticised for lack of mechanism for coordination of the regional policy on the national level, that it has not completed the reform of the territorial administration and public finance and, finally, there is no established legal basis for the implementation of the regional policy - there exists no legislative act dealing with regional policy. Even when something is reflected in the governmental documents, it can often be postponed. In spite of this, the conclusion of the European Commission in Agenda 2000 on Polands application for membership is that the system for regional development in Poland is proper for the integration on condition that there will be created a system for coordination, monitoring and control on the central level of government, and the personnel working for the management and administration of resources for regional developemnt will be strengthened.

In the Statement of the Europaen Commission it is marked that Poland hasd accumulated considerable experience in policies of the type of the structure funds of the EU. Its participation in programs funded maily by foreign donors has given the opportunity for drafting of such strategies for development, which are very close to the objectives of region policy in the Union. The weak sides of the Polish regional policy, according to findings of the Polish Regional Development Agency are:

non-completed decentralization (this should be accomplished by January 1, 1999);

the regions are very weak, they have no resources and opportunities for implementing regional policy;

strict budget limitations;

the vertical links dominated the horizontal links.

In the yearly report of the OMAS Consortium on the use of the resources from the Phare-STRUDER Programme from February 1997, the following recommendations are made:

a regional development policy should be worked out and there should be defined a ministry or agency, responsible for the coordination ofthe activities of regional development;

there should be a change in the status of the Polish Regional Development Agency, which is a business organization, and it should be under the control of one of the ministries;

The decision making for starting negotiations on accession to the European Union has led to an obvious change in the existing attitude towards regional policy.

Country profile 6: Romania

Table 1: General Information

Indicator Year Unit For The Country

Population 31.12.1997 22 520 000

Territory square kilometers 238 391

Density of population persons per square kilometer 95,7

Unemployment 1997 % 9,2

Inflation 1997 % 137

Gross National Product (GNP) 1997 USD per capita 4 600

Percentage of the average GNP of the EU countries 1995 % 24

Annual size of the GNP 1997 % -1,1

Number of municipalities 1998 2 948 (NUTS 5) ₂₈

Number of regions (judets) 1998 41 (NUTS 3)

Capital city: Bucharest 1992 population 2 354 510, divided into 6 administrative regions

Indicator	Year	Unit	For The Country
Population	31.12.1997		22 520 000
Territory		square kilometers	238 391
Density of population		persons per square kilometer	95,7
Unemployment	1997	%	9,2
Inflation	1997	%	137
Gross National Product (GNP)	1997	USD per capita	4 600
Percentage of the average GNP of the EU countries	1995	%	24
Annual size of the GNP	1997	%	-1,1
Number of municipalities	1998		2 948 (NUTS 5) ₂₈
Number of regions (judets)	1998		41 (NUTS 3)
Capital city: Bucharest	1992	population	2 354 510, divided into 6 administrative regions

Source: National Commission for Statistics and the European Commission

1. Necessity for a regional development policy

Romania is a country with a variety of natural conditions on a relatively small territory, which is a reason for considerable regional differences in demographics, labor market, economy and infrastructure. The density of population is highest in the eastern and southern regions of the country.

According to the conclusions in the report on regional problems and policies in Romania, prepared by the Organization for Economic Cooperation and Development ₂₉ it can be considered that Romania has a comparatively low degree of differences with regard to the income per capita in the country, which, above all, reflects the underdevelopment of the majority of the regions, instead of balanced territorial development. The difference in the GNP from 116% from the country’s average for the capital to 54% in the southern regions is comparatively moderate (thus for example in the European Union the GNP varies from 66% from the European average in Greece to 169% in Luxembourg). The tendencies of unemployment the distribution of foreign investments, which are an important premise for economic development, indicate that regional differences will continue to grow. Some favorable factors, according to the above mentioned report, are the existence of e region-oriented approach in economic development and the policentricity (the existence of a network of considerable provincial centers, that are suitable for the role of points for growth of the functional regions). By marking "the impressive progress with regard to establishing a decentralized regional policy for a short period of time", the report concludes that if the country applies completely the recommendations of the Regional Development Green Book, Romania will be the country with one of the best developed policies for regional development in Central and Eastern Europe ₃₀ .

2. Legislative framework of the regional development policy

On May 18, 1998, the Council of Ministers adopted a draft of the Regional Development Act. This document has already passed through the Chamber of Representatives in Parliament.

In 1997 upon the request of Romanian government and with the support of the Phare Program, the Green Book for Romania’s Regional Development was prepared. It draws the possible model for regional development, establishes the fundamental principles, the institutional framework, the basic goals and instruments of the regional policy of Romania and makes specific suggestions.

The first suggestion is that the existing division to 41 districts is not appropriate as a basis of the regional development. The districts must be grouped for the purposes of the regional policy. These regions should serve as the geographical basis for the collection and analysis of the regional statistics for the purposes of planning and implementing regional strategies for development. The sub-regions with specific problems in their development are defined as the potential priority zones. It is proposed this cooperation of the regions to be done through voluntary unification of the districts and the municipalities.

The second suggestion is on the new institutional structure. The third suggestion is for the creation of an integrated program structure for allocation of the financial resources. The National Program for Regional Development should serve as a recommendable framework for the sector plans of every ministry. The decisions for resource allocation should be taken in accordance with the principles of the structure funds - subsidiarity, concentration, programming, partnership and complementation.

On the basis of the Green Book began the work for the legal and institutional establishment of the regional development policy, a process which is expected to end during the first quarter of 1999.

3. Goals and principles of the regional development policy

The government program for the period 1997-2000 includes a new approach to the issues of regional development, integrated in the broader preocess of economic and administrative decentralization, which will ensure the concern of local and regional communities. The impact policy aiming at adaptation of the ineffective enterprises will be coordinated with the policy of regional and local development, as well as with the social security. Although that government believes that it is not necessary for the state to intervene in order to support profiting enterprises, it accepts to give short-term assistance to the ineffective enterprises, whose structural adaptation would have a significant social effect in certain geographic zones ₃₁ . In connection with the national programs for restructuring will be coordinated the projects for regional and local development. The government views its own intervention in support of structural adaptation of certain enterprises as a way of cooperation with local authorities, which strengthens their potential to draw and implement local development policy. The adoption of local and regional alternatives is stimulated, especially those which reflect the true needs of the local communities with regard to the following:

creation of new jobs;

programs for active measures, directed towards coping with unemployment;

new private enterprises with future potential, especially in the export sphere;

retraining and adaptation programs;

infrastructures, suitable for the creation and development of small and medium enterprises;

urban development by the creation of non-agricultural activities and infrastructure;

creation of special zones for economic development;

The main objectives of the regional development policy in Romania, according to the Regional Development Draft Law are to:

decrease the existing regional differences, particularly by accelerating the revival of development in the regions in unfavorable conditions, as a result of some historical, geographic, economic, social and political factors, and to prevent the emergence of new imbalances;

prepare the institutional framework with regard to fulfilling of the criteria for integration into the structures of the European Union and for access to the structural funds and the Cohesion Fund of the European Union;

unite the actions and policies of the state sector in the regions, through stimulation of initiatives and taking into account the local and regional resources for the purposes of sustainable social, economic and cultural development of these regions;

stimulate inter-regional, international and trans-border cooperation, including the euro-regional partnership, as well as the participation of the regions in the European structures and organizations, ensuring institutional and economic support, with regard to the implementation of common interest projects.

Because of the comparatively small regional differences in Romania, for this country it is easier, than for Hungary for example, to make its strategic choice between economic growth and encouragement of regional competition on the one hand, and coping with poverty, assistance for the backward regions and equalization of regional disproportion on the other. Similarly to the other countries in transition, it is certain that the differences will deepen with the advancement of the policy of reforms. Although that government, and society as whole, wants to diminish the differences, it will be difficult to lead a policy, focused mainly on the poor regions or the regions with highest unemployment. The goal of the regional policy is also to strengthen entirely the economic potential of the country, and that is why it can not ignore the "leaders" or "vanguard" of the economic transition, i.e. the well developed part of the country, which has entrepreneur, educational and research resources.

4. Regions, subject to the regional development policy

The district councils are entitled, after preliminary consultation with municipal councils, to define the territory of the respective districts as "development regions". So far there were created 7 out of the 8 planned for the entire territory of the country. The fact that they were created before their legal arrangements is being underlined and demonstrated as a consequence of the policy of decentralization where the initiatives emerge down-up. These development regions will not have administrative character and will not be legal entities. The creation of the mentioned 7 regions was done voluntarily and through government’s assistance, in accordance with Act 21/1924 concerning associations and foundations. The necessity for the existence of development regions is also prompted by the big number small municipalities and districts with small territory.

The experience of other countries shows that there exist considerable obstacles to the attempts for creating new regional division for the purposes of regional development. The obstacles come from the administrations of both central government departments and the municipalities. That is why when creating such structures the division of functions between them should be very precise.

On this occasion the report of OESR notes that: "If we consider the fact that Romania will need several more years before starting the negotiations for EU accession, the creation of macro-regions especially for the purposes of the future European integration may seem too much, because of the high expenses of this operation. The associations of the districts will start pressing the government for transfer of resources. The experience of other countries, and Portugal in particular, shows that it is reasonable to postpone the creation of macro-units for the purposes of European regional policy until the moment of actual accession. If the new macro-regions will also have functions other than the implementation of the regional policy - functions related to the broader issue of decentralization - then their immediate creation will bring only loss of time and resources ₃₂ ."

The procedure for gaining an "unfavorable zone" is the following: upon request from the municipal or district council the Regional Development Council may ask the National Council to propose to the government to declare certain zones as "unfavorable zones" with regard to providing support to them through the specific instruments of regional development.

The financial relieves, which stem from this status, as well as the criteria and conditions for granting these stimuli are arranged by a separate law. In accordance with them, the government defines the specific fiscal relieves for each of these zones.

5. Institutional structure

5.1. Competent bodies on the national level

5.1.1. Responsible ministry

There is no separate ministry, responsible for regional development. In the fall of 1997 the Public Administration Department of the Council of Ministers was entitled by the government to coordinate temporarily this policy until the law is enacted. From the beginning of 1998 this responsibility is given to the Council on Reform.

It is important to note that regional development in Romania is run separately from the physical planning policy, in the sphere of which the country has a complete and holistic legal and administrative basis unlike regional development. Physical planning is within the responsibilities of the Ministry of Public Welfare and Physical Planning. The Parliament is about to view a new bill on physical planning.

5.1.2. Consultative/coordinating Council

It is envisioned that after the adoption of the law there will be created a National Council for Regional Development chaired by the Prime Minister and having as members representatives of state bodies, involved in regional development on the minister, state secretary or deputy state secretary levels. This will be the body, which will coordinate regional policy with the sector policies. The National Council ₃₃ :

approve the national strategy and national program for regional development;

approve the criteria, priorities and procedure for the allocation of resources from the National Regional Development Fund;

check and approve the spending of resources, given from the national fund to the regional development agencies;

approve the use of resources of the type of structural funds, granted to Romania by the European Commission during the accession period, as well as from the structural funds after the EU accession;

The status of the National Council is adopted by a government decree.

5.1.3. National Agency for Regional Development

The Agency shall:

development a national strategy and national program for regional development;

develop the principles, criteria, priorities and procedure for allocating resources from the national fund;

provide the financial and technical management of the National Fund for Regional Development;

encourage cooperation among the districts, cities and municipalities;

provide the necessary assistance to the councils and agencies for regional developmentin the process of their institurional capacity building;

propose to the National Council to declare certain regions as "unfavorable regions" , so that they are given economic and financial support through the specific instrument of regional policy;

acts as a national body in the relations with Main Directorate XV of the European Union concerning questions related to the European Fund and the Cohesion Fund;

administer the resources given by the European Fund for Regional Development and from the Cohesion Fund of the European Union to Romania.

The status of the agnecy is arranged by a government decree.

5.2. Bodies for implementing the regional policy on the regional level.

At the regional level there will be built the same structures like at the national level - a Regional Council for Development, a Regional Development Agency and a Regional Development Fund.

5.2.1. The role of the existing administrative structures

The country follows the French model of public administration and is divided into 41 districts (judets) and 2,948 municipalities. The municipalities are very small in terms of territory and population - almost 2,700 of them have population of between 1000 and 10,000 people. They are governed by directly elected mayor and municipal council. Directly elected by the people is a district council, as a self-government body. The concil has a professional secretary, which is appointed by the Local Public Administration Department of the Council of Ministers.

The municipalities are represented in the council for regional development. Together with the district councils they define the development regions. The district is a deconcentrated unit of local state administration, heade by a prefect (governor). The Governor (prefect) is appointed by the Prime Minister and represents the state interests.

5.2.2. Regional Development Council

It is created in the development regions, not in the administrative regions (districts). It consists of the presidents of the district councils and representatives of each municipal council. The member choose a chairperson and a deputy chairman. The District Governor can also attend the meetings of the council. Representatives of local, city and municipal councils, institutions and organizations working in the sphere of regional development. The councils’ functions are defined by a decree of the Council of Ministers. The council:

analyses and adopts the strategy and programs of regional development;

approves projects for regional development;

proposes to the National Council the creation of a Regional Development Fund;

approves the criteria, priorities, distribution and destination of the resources of the Regional Development Fund;

5.2.3. Regional Development Agencies

In every development region (not administrative region) is created a Regional Development Agency. These are non-governmental, not-for-profit structures. The director of the agency is appointed by the Regional Development Council. The resources necessary for financing the activities of the agency are provided from the Regional Development Fund and the resources are plnanned by the Regional Development Council.

The Agency:

drafts a strategy for regional development, prgrams and projects and submits them for approval to the council;

implements programs for regional development, in accordance with the decisions taken by the council;

together with the local and/or district councils identifies the zones in unfavorable situation on the territory of the development region and propose the relevant documentation, approved in advance by the council, to the National Agency for Regional Development and to the National Council;

together with local or district councils ensures the technical support to state or private entities that invest in the unfavorable regions;

makes proposals for financing of projects already approved by the National Agency;

works for fund raising for the Regional Development Fund;

administres the Regional Development Fund wit the purpose of achieving the goals of the regional development programs.

6. Financing the regional development policy.

6.1. National Fund fr Regional Development

The resources in it are planned annually in the state budget for regional policy. Resources are also received from:

the permanent financial assistance of the Phare Program of the European Union; international funding sources;

funds of structural type, planned by the European Union for Romania during the period of accession;

resources from the structural funds from the moment Romania acquires full membership in the European Union;

grants from various governments, international organizations, banks and others;

other financial resources, provided by the government.

The 1999 budget law will include resources for the National Fund for Regional Development, and it will be included as a separate item in the state budget.

On October 31, 1997, the European Commission approved 1,4 million ECU for the institutional capacity building of the regional development policy in Romania at the central and local level. The evaluation of the European Commission is that Romanian fiscal instruments available for regonal development initiatves are limited.

6.2. Regional Funds

Regional Development Funds

They are administered by the respective agency for regional development. They willnot be financial institutions. Private persons are not interested in putting money in the fund and thatnis why it is necessary to invent ways to stimulate this process.

The resources of the fund are gathered from: the National Fund for Regional Development, local and district budgets, private sector, banks, foreign investors, the European Union and other international organizations. The resources of the fund can not be used for anything different from what the law states.

7. Regional development and EU accession

In the statement of the European Commission it is noted that there exist only certain elements of the policy that are compatible with the guiding principles and goals of the structural funds. There does not exist an entire and encompassing framework, incorporating the policy, legislation and instruments for regional development. The implementation of the principles and goals is difficult, because of the weak public administration both on the national and local levels. That is why an overall improvement of the policy is recommended, as well as better defining of the lagal basis, clarification of the respective roles and responsibilities of the existing bodies, creation of a satisfactory financial control.

Unlike almost all other candidates for EU accession, including Bulgaria, Romania has no common borders with the union, which severly limits the opportunities for implementing joint programs.

From the point of view of the perspective for EU accession, it should be marked that the weak development of Romania as whole rather than the economic backward situation of individual regions is the great problem. That is why state intervention is channeled mainly towards the regions with high concentration of industry, afflicted by the process of restructuring.

Endnotes

Note 1: A similar goal is set up as short-term in Estonia (see below). Back.

Note 2: The experience of Finland and Sweden is especially interesting, as the two countries managed to impose the formulation of a new goal 6 of the structural regions, aimed at supporting the thinly populated areas with extreme conditions, which exist only in these two countries. Back.

Note 3: For the 2000-2006 period, ECU 45 billion will be allocated for the candidate countries, including ECU 1 billion annually for accession preparations. Back.

Note 4: European Bank for Reconstruction and Development evaluation on a 4-point scale. Back.

Note 5: Specifically listed are the Finnish Regional Development Act of 1994, the French Regional Development Act of 1995 and the German Regional Economic Structure Improvement Act of 1969, the Contract for the European Union, and the European Charter on Regional Planning. Back.

Note 6: See Requirements Related to the EU Accession Process. Back.

Note 7: NUTS = "Nomenclature of territorial units for statistics" is the classification of the regions of the EU member states Back.

Note 8: "REGIONAL PROBLEMS AND POLICIES IN ROMANIA: DRAFT FINAL REPORT ON THE STUDY VISIT TO ROMANIA (26 OCTOBER - 1 NOVEMBER 1997)" ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, CCNM/DT (98)38, page 70 Back.

Note 9: Resolution 35/1998 (III.20.) OGY of the Parliament on the Regional Development Concept. Back.

Note 10: Ibidem, p. 71 Back.

Note 11: NUTS = "Nomenclature of territorial units for statistics" is the classification of the regions of the EU member states. Back.

Note 12: About 68% of the territory is occupied by forests, 10% by water territories, mainly lakes, while the arable land is only 8%. Back.

Note 13: Regional Development Act 1135/93. Back.

Note 14: See Article 1 of the Regional Development Act. Back.

Note 15: Thus for example the Regional Council of Hamenlina, which was given a special visit connected with the preparation for the countries’ review includes 16 municipalities with population of 165 000 inhabitants. Part of the region is included in the programs along Objective 5b of the EU. Back.

Note 16: It is necessary to note, that the grouping of municipalities started several year prior to the enactment of the law. Back.

Note 17: Regional Development in Finland, Publisher: Ministry of the Interior, Helsinki, 1997. Back.

Note 18: NUTS = "Nomenclature of territorial units for statistics" is the classification of the regions of the EU member states Back.

Note 19: "REGIONAL PROBLEMS AND POLICIES IN ROMANIA: DRAFT FINAL REPORT ON THE STUDY VISIT TO ROMANIA (26 OCTOBER - 1 NOVEMBER, 1997) " ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT, CCNM/DT (98) 38, p. 55; p. 68 Back.

Note 20: Regional Development in Poland - basic facts, Prepared by the Polish Agency for Regional Development. Back.

Note 21: Task Force for Regional Policy. Back.

Note 22: In the statement of the European Commission the nature of the agency is defined a little differently, as a structure that administers foreign aid in the sphere of regional development. Back.

Note 23: Phare-STRUDER; Phare-RAPID; Phare-INRED; Small and Medium Business Program and the Polish-Swedish regional Program. Back.

Note 24: The adopted law will be enacted on January 1, 1999, and it provides the existence of 15 regions, but on July 1, 1998, the Polish President vetoed the law, because he supports the request of the left opposition parities for the creation of 17 instead of 15 regions. Back.

Note 25: The District Self-Government Law was adopted on July 5, 1998 and will be enacted on January 1, 1999. Back.

Note 26: Because the Industrial development Agencies do not have shares in all agencies, the overall stock share of the municipalities, banks and other organizations is larger. Back.

Note 27: Polish Agency for Regional Development - "Implementation of the Phare-STRUDER Programme. Results and preliminary conclusions."; "Examples of investment projects assisted by the Phare-STRUDER Programme", Warsaw, September 1996. Back.

Note 28: NUTS = "Nomenclature of territorial units for statistics" is the classification of the regions of the EU member states Back.

Note 29: "REGIONAL PROBLEMS AND POLICIES IN ROMANIA: DRAFT FINAL REPORT ON THE STUDY VISIT TO ROMANIA (26 OCTOBER - 1 NOVEMBER, 1997) " ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT, CCNM/DT (98) 38 Back.

Note 30: Ibidem, p. 46. Back.

Note 31: The Basic Programme for Romania’s Macro-Stability and Development until the Year 2000, Bucharest, December 1996, page 46-47 Back.

Note 32: Refer to 1, p. 62 Back.

Note 33: The majority of the structures in item 5 still do not exist, but are part of the draft for regional development law. Back.