Federated States of Micronesia

By urging the nation to "measure up to the challenges of the New Year," in his address to the nation on 29 December 2000, Vice President Redley Killion provided a theme for this review. The ongoing negotiations with the United States on future economic assistance have yet to reach an agreement. For the third time since its ratification in 1979, the nation's constitution will be up for review, with renewed challenges.

The last case in the cholera epidemic that had plagued Pohnpei since May 2000, claiming 20 lives, infecting a total of 3,525 people, and costing the state over $600,000, was reported in January 2001. By mid-February, the state government could declare the epidemic over and the state free of cholera.

Closure to a long-drawn-out court case between the states and the national government may be in sight. The nation's court of appeal rejected appeals by the states for revenues generated by fisheries licensing of the exclusive economic zones. Earlier the national congress had changed the revenue-sharing formula between the states and the national government by increasing the states' share to a 70-30 distribution.

As the fifteenth anniversary and expiration date of the major funding provisions of the Compact of Free Association between the United States and the Federated States of Micronesia (FSM) draws closer (November 2001), the Joint Committee for Economic Negotiations is doing its best to sell a more responsible future economic management image for the nation.

FSM and US negotiators have agreed on four principles of negotiation, which are known as the Honolulu principles. They include commitment to defense, commitment to economic development for the Federated States of Micronesia, commitment to policy reforms, and more attention to accounting. Earlier in 2001, the US General Accounting Office (GAO) criticized the handling of compact funds and also the FSM government's continued foot-dragging on reforms designed to reduce payroll and increase cash flow. Then chairman of the joint committee Epel Ilon reacted to the GAO report by pointing out that the FSM economy has been growing an average of 2.5 percent since 1987, and that the national and state governments have made significant commitments to private and government sector reforms; the public sector has been downsized by 21 percent, reducing the government payroll by 29 percent.

The FSM negotiators started the process by seeking future compact assistance in the form of financial grants of $99 million per year for twenty years, and the creation of a trust fund to end its financial dependence on the United States. The United States responded by offering $61 million per year in grants for fifteen years and $13 million per year for the same period for a trust fund. Both parties agree that the trust fund may also include contributions from other nations.

Current FSM chief negotiator Senator Pete Christian expressed concern over the implementation of compact funding and suggested that front-loading of future compact assistance might offer a better chance for economic growth. The United States is pushing for future compact assistance to be in the form of grants to ensure accountability for spending.

In related developments, the Economic Implementation Council, made up of the executive and legislative heads of the nation and its four states, met on 13-14 July. It demonstrated the country's willingness to enact strong and responsible economic legislation to ensure a more secure future. A resolution was enacted requesting the congress to direct as much as 60 percent ($20 million) of future excess compact funds to the stability account of the trust fund. The expectation of excess funds depends on the possibility that the compact economic assistance negotiations will not be completed by the end of the fifteen-year life of the compact. The current compact provides for continued US economic assistance (an average of three five-year stepdowns).

The United States has also...