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MAJURO, Marshall Islands (June 19, 1998 - Radio Australia)---The Marshall Islands has slashed government salaries by 12.5 percent because of its worsening financial situation.

A cabinet directive said the cuts would be effective beginning in July.

The Bank of Marshall Islands immediately suspended all loans to government workers until after the salary reductions are implemented. Other local banks say they expect a higher rate of loan defaults as a result of the cutbacks.

The Agence France-Presse (AFP) news agency reports government officials are anticipating a revenue deficit of at least $AUS 2 million ($US 1.2 million) this year.

Despite an increase in local taxes, revenue collection has been less than predicted.

Since late 1997, the Marshall Islands government reform program, supported by the Asian Development Bank, has slowed.

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