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When a people and nation move from a colonial status to one of sovereignty and self-determination it is a momentous occasion. To the people of the Federated States of Micronesia, 1986 marks the year in which they at last attained full independence, following century of colonial status.

In 1996, following a full decade of independence, the FSM Government asked Dr. John H. (Jack) Sullivan, Vice President for International Activities of Development Associates, Inc., to review the 10 years and to prepare a report on the progress that has been made. Dr. Sullivan was chosen because of his association with the FSM since 1981 and his ability to make "before" and "after" comparisons. In essence, this is a snapshot of the country on its 10 year birthday. It is hoped that by recording national progress, both the people of FMS and the outside world alike will better appreciate what has been achieved in a relatively short period of time, as well as to understand the work that remains to be done.


FSM: The Setting Introduction Land, Water and People The Colonial Termination of the Trusteeship The FSM in the International Arena FSM as a Contributor to the Pacific Region FSM Performance at the United Nations Voting with the U.S. on Important Issues Comparison of Voting Record Voting on Selected Issues FSM As a Leader Among Island Nations The FSM in Other International Fora FSM Bilateral Relationships The Strategic Position of the FSM Constitutional Democracy in Micronesia Progress Under the Compact Investments in Infrastructure Progress In Telecommunications Housing - A Story of Micronesian Self-Reliance General Housing Characteristics Size of Dwelling Utilities Private Sector Development: The Construction Industry The FSM and the Environment Environmental Awareness and Education Manage and Protect Natural Resources Environmental Sanitation Integrating Environment and Development Human Resource Development in FSM Meeting the Challenges of the Future Wage and Salary Reductions in the Public Sector Increasing Domestic Revenue Generation Restructuring Government Departments Reforming Public Utilities Restructuring Public Enterprises Supporting Private Sector Development


In the history of a nation, no less than in the lives of individuals, there is truth in the maxim: "Timing is everything." For the peoples of Micronesia, the period of colonial rule 1886 to 1986 adds up to a century of bad timing. During the ensuing decade, 1986 to 1996, the aspirations of these Pacific Island peoples have found expression in the independent and sovereign Federated States of Micronesia (FSM). It represents a strong beginning, in partnership with the United States, for a process of economic and social development that still has far to go but compares more than favorably to myriad examples in the developing world.

It is not the purpose of this study and report to dwell on the inevitable mistakes that have been made along the way, but rather to provide information about the results of the substantial investment by the United States in the Compact of Free Association. The study documents the gains that have been made by the FSM during the decade, reviews the challenges to its progress, and cites steps currently underway to provide remedies.


The Federated States of Micronesia is a grouping of 607 islands in the Western Pacific about 2,500 miles southwest of Hawaii, lying just above the Equator. FSM generally comprises what map makers have called the Eastern and Western Caroline Islands. While the country's total land area amounts to only 270.8 square miles, it occupies more than one million square miles of the Pacific Ocean, and ranges 1,700 miles from East (Kosrae) to West (Yap). Each of the four States centers around one or more "high islands," and all but Kosrae include numerous atolls.

FSM enjoys a tropical climate, with relatively even, warm temperatures throughout the year. Rainfall is generally plentiful, and Pohnpei reputedly is one of the wettest places on Earth, with up to 330 inches of rain per year. Nevertheless, drought conditions do occur periodically throughout FSM, especially when the El Niño condition moves into the Western Pacific. Tropical typhoons constitute an intermittent threat, particularly to the low-lying atolls.

By most recent estimates the total population of FSM stands at about 110,500, an increase of some 20,000 since the last census in 1980. The State of Chuuk accounts for roughly half the total, at about 50,500. Pohnpei is next at about 35,000. Yap has about 12,000 people, and Kosrae about 7,500. Since FSM citizens are free to enter the U.S., to maintain "habitual residence" and to pursue education and employment, an estimated 15,000 Micronesians currently live and work outside their country on U.S. territory. The number who actually emigrate to the U.S., however, remains relatively low as most FSM citizens eventually return to FSM. At least eight major indigenous languages are spoken, as well as many dialects, none throughout the entire archipelago. The common language of commerce and government is English.

The general ethnic character of the people is Melanesian, with a small number of Polynesians. The influence of European and Japanese contacts is also seen. It can be said that each of the four States exhibits its own distinct culture and tradition, but common cultural and economic bonds exist that reach back to antiquity.


In 1525 Portuguese ships in search of the fabled Spice Islands (Indonesia) first came upon the islands of Yap and Ulithi. Spanish expeditions later made the first European contact with the rest of the Caroline Islands. But it was not until 1886 that the Spanish bothered to take formal possession of the islands. The Spanish empire was in steep decline at the time---its Latin American colonies long since having declared independence. It hoisted its flag in Micronesia during a period in which countries late to the scramble for colonies were spanning the globe looking for slivers of land over which to declare their sovereignty. To protect what it always had considered its own, Spain acted. For both Micronesia and Spain, the timing was bad. Barely 13 years later the Spanish flag came down again. Spain, defeated by the United States in the 1898 war, sold its nominal interests in the islands to Germany in 1899.

The Germans proved to be more active colonists, encouraging the development of trade and the production of copra. But again, timing was bad. The Germans had been in charge for only 15 years when, with the outbreak of World War I, Japan, then a member of the Allied Forces, sent its navy to the mid-Pacific and took military possession of the Carolines, Marshalls, and Northern Mariana Islands.

Japan began its formal administration under a League of Nations mandate in 1920. It wasted no time in developing its new colony's economy, establishing sugar, mining, fishing and tropical agriculture as major industries. It also encouraged the extensive settlement in the islands from Japan, a population that reached 100,000 or about two-and-one half times the numbers of islanders. The Japanese sponsored schools and health centers, most of them open to Micronesians. Of that period Historian Francis X. Hezel, S.J., says:

The 1930s was the period of the economic miracle in Micronesia. In this decade the island territory became self-supporting, with exports not only surpassing imports for the first and last time, but producing enough revenue to pay Nan'yo-cho's (Japan's) administrative costs. Production increased many times over between 1930 and 1940; exports alone multiplied fourfold. This period comes to mind when people speak of the "Japanese era"---the standard by which the industrial potential of the islands is estimated and the norm by which all other eras are judged.

World War II spelled an end to this prosperity. As the United States gradually advanced over the Pacific, the plight of the Micronesians worsened steadily on those islands still in Japanese hands. Islanders spent their days huddled in ditches and caves hoping to avoid bombing and strafing or were dragooned into labor gangs. Food was scarce; medical attention nonexistent.

Although Micronesians suffered relatively few casualties as the result of the strife, their lands emerged from World War II scarred by combat and their island economies in shambles. The response of the new occupying power --- the United States, represented by the U.S. Navy --- was benevolent but basically indifferent to rebuilding the 20th Century economy the Japanese had created. Outside investment, even from the United States, was discouraged. An entrepreneurial spirit manifested itself among Micronesians immediately after the war. Hundreds of islanders applied for business licenses to be blacksmiths, barbers, florists, seamstresses, tailors and photographers, or to run restaurants, ice cream stores, bakeries and retail shops. By the end of 1951 throughout Micronesia there were 352 stores, all locally owned. Without any underlying productive economy, however, most indigenous businesses were doomed. As Hezel has observed:

"Disappointed by the failure of the US administration to duplicate the achievements by Japan, most of the would-be entrepreneurs soon resigned themselves to the obvious: the return of their islands to an agrarian economy."

On the political front, in 1947 the United Nations created the Trust Territory of the Pacific Islands (TTPI). It included as "districts" six island areas: Ponape (then including Kosrae), Truk (Chuuk), Yap, the Marshall Islands, and the Northern Mariana Islands. The United States was made trustee of this unusual "Security Trusteeship," whose ultimate disposition was in the hands of the Security Council (where the U.S. had veto power) rather than the U.N. General Assembly. A High Commissioner was appointed to administer the TTPI and a colonial bureaucracy established. In assuming its role as Trustee, the United States agreed to promote the development of the inhabitants toward self-government or independence and "promote the economic, social, and educational advancement" of the Micronesian peoples.

In 1962, the TTPI was removed from the civil administration of the Navy and passed to the U.S. Department of the Interior, which also administered Native American reservations. The shift from military to civilian control was occasioned in part by criticism in the United Nations that the U.S. had allowed the islands' economies to remain stagnant and little was being done to move the Micronesians to self-government. This critique essentially was validated by the findings of a 1963 Presidential task force headed by Anthony V. Solomon, a businessman and Harvard economics professor. In a key finding, the Solomon Report said:

For a variety of reasons, in the almost twenty years of US control, physical facilities have further deteriorated in many areas, the economy has remained relatively dormant and in many ways retrogressed while progress toward social development has been slow. The people remain largely illiterate and inadequately prepared to participate in political, commercial and other activities of more than a rudimentary character. The great majority depend largely upon subsistence agriculture -- fruit and nut gathering -- and fishing.

In a very real sense Micronesian society and economies had come full circle from 1920. It was not simply stagnation that occurred but palpable disintegration. Amid growing criticisms about America's stewardship of the Trust Territories, a succession of U.S. administrations reacted. Rather than repriming the economic engines, however, the Americans invested in social services, particularly education and health. The concept -- one that was growing in favor with the aid donor community worldwide -- was that a healthy, well-educated populace would be able to create participatory societies and determine their own development. The notion also fit well with the "Great Society" concepts of the Johnson Administration and Department of Interior policies on Native American reservations.

Many positive results were achieved by those policies. Life expectancy and literacy rates improved sharply during the 1960s and 1970s. The Micronesian peoples were being brought to a point where self-government and ultimate independence became realistic.

But there was a downside to this approach. The level of social investment was far beyond what might be sustained through the islands' own economic resources. Moreover, the TTPI was creating a bureaucratic welfare state in which even services that might normally be furnished by the private sector, like automobile repair or housing construction, were available only from the colonial government. Moreover, the basic infrastructure needed to underpin economic growth was badly neglected. There virtually were no paved roads. Water, electrical and telephone services where they might exist were of a rudimentary and uncertain kind.

This was the situation faced by the four TTPI districts that came together in July 1978. Truk (now Chuuk), Yap, Ponape (now Pohnpei) and Kusaie (now Kosrae) formed a federation under the Constitution of the Federated States of Micronesia (FSM). Unlike the Marshall Islands or Palau, the four FSM states lacked major U.S. military installations or the potential for them. While FSM leaders primarily were intent upon achieving political independence and the end of the Trust Territory, they were ever conscious of the difficult and nagging issues involved in creating a viable economy. The islands had virtually no industry, few natural resources except their fisheries, a labor force of limited education, and a "splendid" isolation in the mid-Pacific, away from trade routes and major markets. While the physical infrastructure had begun to improve, it was still inadequate to support a thriving business climate.


The period from 1979 when the Constitution was implemented until 1986 was a period of intense negotiation between the United States and the FSM over the terms of a "Compact of Free Association" in which the island nation would become fully self-governing within a U.S. assistance and security framework. Initially the process involved the FSM in negotiations with the U.S. Status Commission, an inter-departmental group representing Interior, State and Defense. Following signing of an agreement in 1982 and submission to Micronesian plebiscites in 1983, the Compact was sent to Congress in 1984 where important changes were made, necessitating another round of negotiation. It should be noted that throughout this interim period, the FSM was sovereign but not fully self-governing, particularly in the economic realm. The TTPI continued to provide the significant majority of the funds to the governments, both national and state, and the TTPI Governor had the power to overturn budget and spending decisions made by FSM legislatures.

Finally, in 1986, after some 15 years of intensive negotiations, the Compact was passed by both Houses of Congress and sent to the President who signed it into law. The United States immediately notified the UN Trusteeship Council that, having fulfilled its obligations, the Trusteeship Agreement would no longer apply. Thus, true independence for the FSM---after 100 years of colonialism---dates only from 1986, little more than a decade ago. Nevertheless, during this short period of autonomy the FSM has made significant social, political and economic progress. This report documents many of these accomplishments.


FSM has involved responsible participation as a nation-state in the affairs of the international community. FSM's leaders also recognize that such participation is an important element in its long-term goal of reaching economic self-sufficiency.


As soon as the UN Trusteeship was terminated in 1986, the FSM Government began working diligently to contribute to the advancement of the Pacific Region, especially in economic and environmental areas, working in such regional organizations as the South Pacific Commission, the South Pacific Regional Environmental Program, the Forum Fisheries Agency, the Association of Pacific Island Legislatures, and others.

Since 1987 the FSM's membership in the South Pacific Forum, a body of 13 Pacific Heads of State, has provided the cornerstone of its program within the Pacific community. Former FSM President Bailey Olter served as Forum President in 1991-1992, and hosted the Forum's annual meeting in Pohnpei. During that year Ambassador Jesse Marehalau, the FSM's first UN Permanent Representative, presided at regular meetings of the SOPAC group at UN Headquarters in New York. SOPAC includes those members of the South Pacific Forum who also are members of the United Nations. President Olter was spokesman for the Forum countries at the UN Convention on Environment and Development (UNCED, or, the "Earth Summit"), held in Rio in June 1992. Two years later, at the First UN Global Conference on the Sustainable Development of Small Island Developing States, held in Barbados, the FSM's UN Permanent Representative, Ambassador Yosiwo George, presided as coordinator for the Forum country delegations attending that important gathering. During 1994 and 1995, the FSM's Secretary of External Affairs, Resio Moses, chaired Forum-country negotiations that led to the conclusion of the South Pacific Regional Convention on Hazardous Wastes (the Waigani Convention).


Commencing with its admission to UN Membership in 1991, and each year since, the FSM Government has sought to establish an effective level of participation by making annual high-level addresses to the Assembly at its fall sessions and by working actively in the Assembly's main committees --- particularly in the Second (Development and Economic Cooperation), Third (Human Rights) and Fourth (Decolonization) Committees. At the 48th General Assembly, the FSM secured election of its National Planner, Mr. Marcelino Acktouka, to a place on an experts committee of the Economic and Social Council charged with developing UN policies on energy efficiency and conservation.

FSM has proved to be a very constructive voice and vote in the U.N. While maintaining an independent foreign policy, FSM has been supportive of United States positions on important votes and other actions in the General Assembly. Employing the State Department's annual report, Voting Practices in the United Nations, from 1991 through 1996, the following picture emerges:

Voting with the U.S. on Important Issues

As can be seen from Exhibit A, the FSM consistently has voted with the United States on those issues determined by the State Department to be particularly important. In 1994 this meant voting with the U.S. 100 percent of the time, including supportive votes on:

The percentage of supportive votes increases somewhat when, in addition to important and controversial votes, important consensus actions are added for consideration. This was most notable in 1994 when it rose to 100 percent, as showed in Exhibit B.

Comparison of Voting Record

The significance of FSM voting is made even more striking when its record is compared to that of other countries or groups of countries, specifically FSM's coincidence of voting with the U.S. when compared to (1) all UN members, and (2) the Asia Group to which FSM belongs (Exhibit C). To be noted is that on important votes while the Asia Group votes with the United States only about half the time, and the UN membership generally about two-thirds of the time, the FSM has never been below 80 percent on that scale and in 1993 and 1994 considerably higher.

This trend also is evident when one looks at the ranking of the FSM within the Asian Group. It consistently has been in the top rank of the 49 countries that make up the group, including a first in 1994 and a second in 1993.

Voting on Selected Issues

Since 1994 the State Department has been calculating voting coincidence on specific types of issues. Among them are human rights and the Middle East. When judged on this scale, FSM once again demonstrates its congruence of viewpoint with the United States. It consistently has supported U.S. positions in these two significant areas, as noted in Exhibit D.

In summary, State Department-gathered statistics show that the United States gained a friendly and cooperative partner in its international initiatives and positions when the FSM joined the United Nations.


While valuing close ties with the United States, the FSM also has maintained active association with ad hoc groupings of countries whose interests are in common with those of the FSM, such as the Group of 77, and particularly with groupings of small-island developing countries. A key group is "AOSIS," the Alliance of Small Island States, 44 countries whose combined voices have significantly impacted the drafting and implementation of recent UN Conventions in the area of environment and development.

The FSM places strong emphasis on its membership in AOSIS and the work of that group in negotiations on the Climate Change and Biodiversity Conventions. FSM delegations worked with AOSIS at all eleven of the formal negotiating rounds for the Climate Change Convention, and participated in drafting the AOSIS proposed protocol to the Convention to establish binding emissions-reduction targets. In late 1994 AOSIS chose an FSM delegate as its candidate for membership on the Bureau of Officers of the Intergovernmental Negotiating Committee for the Climate Change Convention. Following his election that delegate served as Co-Chairman of Working Group II, a committee-of-the-whole concerned with developing legal and financial mechanisms for implementing the Convention.


The FSM also has joined and number actively participates in the work of a number of UN-related agencies, including the World Bank and IMF, the Asian Development Bank, the United Nations Development Program, the World Health Organization, the International Telecommunications Union, INTELSAT, the Universal Postal Union, the World Meteorological Organization and the International Civil Aviation Organization.

Its accession to a growing number of key international conventions adds to an overall picture of commitment by the FSM to the common goals of the world community. These include the UN Convention on the Law of the Sea, the Chemical Weapons Convention, the Nuclear Nonproliferation Treaty, the Convention on the Rights of the Child, the Single Convention on Narcotic Drugs, the Convention on Psychotropic Substances, the Basel Convention on Transboundary Movement of Hazardous Wastes, and as previously mentioned, the Climate Change and Biodiversity Conventions.

The financial and personnel resources of the FSM Government are severely limited, and its ability to participate in many of these fora depends upon the voluntary support of donor countries which has been generous and deeply appreciated. It is the policy of the FSM Government to limit its membership in international organizations to those most directly relevant to its own concerns, and where through membership and participation it can make a constructive contribution.


Beginning with official recognition by the United States in November 1986, the FSM has been accorded diplomatic recognition by 43 countries, the most recent being Greece. Three diplomatic missions are resident in FSM, those of the United States, China and Australia. Thirteen countries maintain non-resident diplomatic missions, including Japan, Indonesia, France, Korea, Israel, Papua New Guinea, Spain, Italy, the Vatican, Germany, Sweden, Netherlands, and the United Kingdom. FSM for its part has diplomatic missions in the United States, including consulates in Hawaii and Guam; in Tokyo, Japan, and Suva, Fiji, and a permanent mission at the United Nations in New York. It carries on active diplomatic intercourse through these bilateral ties as well as by its membership in multilateral organizations.

As a small nation in a big world, the FSM is conscious of its limitations yet proud of its contributions internationally. One of its diplomats, quoting the English statesmen Edmund Burke, expressed what appears to be FSM's guiding philosophy: "No one ever made a greater mistake than he who did nothing because he could do so little."


Without question, the magnitude of the economic assistance to FSM proffered through the Compact was affected significantly by Cold War politics. In 1976, as negotiations with Micronesia were progressing, the Soviet Union began making gestures of friendship to the island nations of the South Pacific. Through agreements on aid, trade, fishing rights, and diplomatic presence, the USSR signaled a move into the Pacific. In a countermove, Australia, New Zealand and the United States stepped up their development activities in the region. The result was increased economic assistance, preferential trade status and lucrative tuna treaties.

A particularly opportune event for FSM occurred in 1985, as Compact negotiations were at their most intense, when Kiribati agreed to allow Soviet fishing vessels to dock for purposes of refueling and provisioning. This was the closest such location to Hawaii and the U.S. West Coast.

While the FSM did not share in the same strategic value as Trust Territory states with U.S. military installations such as the Marianas and Marshall Islands, their political-military importance to the U.S. was undeniably impacted by the experience of World War II in which heavy U.S. casualties resulted from attempts to dislodge Japanese forces from the islands. This "never again" attitude led to the U.S. Congress particularly putting a high value on the security importance of Micronesia. These factors underlay the Compact provisions that grant the U.S. the right of "strategic denial," that is, to control the presence of any other military force in defense of the FSM and of the U.S. itself.

With the onset of the 1990s and the collapse of the Soviet Empire, the situation has changed dramatically. The Russians no longer are making inroads in the Pacific and the strategic importance of the region from that standpoint has diminished. A 1994 conference on the future of the Pacific islands suggested that the result might be a reduction in future U.S. contributions to the FSM and the Marshall Islands."

It would be a significant mistake, however, to assume that the end of the Cold War marked the end of strategic significance for the Pacific Islands. A recent study from the Henry L. Stimson Center suggests that China may aspire to a regional hegemony that would pose problems for East Asian and Pacific nations:

If China's current rapid rate of economic growth is sustained into the twenty-first century, its absolute and relative military power will grow dramatically, shifting the regional military balance in a possibly destabilizing manner. Many regional security planners worry about what they perceive as unnecessarily large increases in Chinese defense budgets, which have been growing more rapidly than in any other state in the region, despite the fact that China confronts a more benign security environment than at any time since World War II.

Confrontations in 1996 between China and Taiwan in the Taiwan Straits, the controversial return of Hong Kong to China, and the Chinese role in the multi-state struggle for Pacific oil --- all require vigilance on the part of the U.S. Moreover, the seeming uncertainties of leadership in China could usher in a period of instability and unrest that would have spill over effects elsewhere in the Asia and the Pacific.

Some strategic thinkers also are concerned about Japan should the U.S. withdraw its forces there. Worries about a revival of militarism have been fueled in the past by the seeming reluctance of Japan to follow the example of Germany in confronting its past and apologizing to those who suffered. In addition, North Korea continues to be a "maverick" state in the region with a frightening capacity to pose serious security threats to its neighbors.

What ever one's view of the future of the Pacific -- "worst case" analysis or other --- it is clear that the United States has a long term strategic interest in a friendly and cooperative FSM. If the U.S. were to break ties with the country, it would open an enormous hole in America's long-standing security zone in the Pacific. It has a missile range to the east of FSM that continues to be of military significance. Beyond is the State of Hawaii itself. As one analyst has concluded:

To exclude the 1,700 mile stretch of the Pacific from Kosrae to Yap in the midst of the U.S. Pacific security zone appears inconsistent with U.S. strategic and economic interests in the region.

That statement in succinct fashion captures the essence of the reasons why a continued close and mutually productive relationship is in the national interests of both the United States and the FSM.

A true "touchstone" of the harmonious relations that have existed between the FSM and the United States during the past decade is evident in the lack of any serious disputes and controversies. The Compact itself has a variety of provisions for resolving disputes between the two sovereign countries. Negotiation of these clauses was a lengthy and painstaking process. Significantly, during the decade just past not a single one of these dispute resolution provisions has been used or even threatened by either party. When differences have arisen, as inevitably they will, the FSM consistently has shown itself willing to work them out in a cordial non-legalist atmosphere as befitting relations between friendly nations. In the 3,700 miles of ocean that lie between Hawaii and Guam, such continued harmony between the FSM and the United States surely must be accorded significant value.


Virtually since the first moment that the Micronesia islands set out on the road to self-governance, strong doubts about the ultimate success of the independence process have been expressed in some quarters:

First, the process of moving from the TTPI to self-government raised serious difficulties because of the problems of uniting people from diverse cultural, ethnic and linguistic backgrounds.

Second, the challenge of crafting a Constitution that would create a modern political entity out of a largely uneducated, highly dispersed population was viewed as virtually impossible.

Third, the unwillingness of some districts of the former Trust Territory ultimately to adhere to the Constitution, left a residual grouping of four of the least economically-advantaged states to form the confederation -- hardly an auspicious start toward nationhood.

Yet some two decades after those events, the founding four States have belied the fears of many observers by maintaining their union and national identify -- and have done so within a democratic constitutional framework.

Under the FSM Constitution which came into effect on May 10, 1979, each of the four States has a locally elected governor and legislature while the central government meets at Palikir on Pohnpei. The 14 member National Congress of the FSM includes one member at large elected from each state for a four year term. The President and Vice-president are chosen by the congress from among these senior members, thus President and Vice-president cannot be from the same state. The other 10 members serve two year terms, apportioned according to population: Chuuk five members. Pohnpei three. Kosrae one, and Yap one.

Elections also are held to select officials at the municipal level. Although there are no formal political parties, positions usually are contested and the campaigns are attended by the range of activities, speech-making and debate found in most democratic countries. Election day turnouts consistently have seen a majority of eligible voters going to the polls. Percentages are highest when major offices such as Governor and Senator are at stake because there is no direct voting for President and Vice President.

Each State also has its own legislative body. Three of them have unicameral legislatures; Chuuk's is bicameral. At the same time the role of traditional Chiefs has been recognized in state constitutions, except in Kosrae which has no traditional Chiefs. The Chiefs play roles of varying formal involvement but nevertheless importance in Pohnpei, Yap and Chuuk, particularly at the municipal level.

The entire Micronesian system of government and laws is adapted from those of the United States. The freedoms guaranteed to Americans by the Bill of Rights are respected and protected in both national and state constitutions. At the same time, the FSM is not a U.S. "clone." Its own traditions of governance are respected in the application of legal structures. The notion of individual rights and the duty of the state to protect them may not have been emphasized in traditional systems, but experience is showing the strong emphasis of FSM constitutional governance on protecting the rights of the individual.

The FSM system has survived three changes of administration at the national level and similar changes at the state and municipal level. In the process it has grown stronger and more sure in the exercise of democratic processes. FSM's democracy and governance truly reflect American inspiration while maintaining the traditions of the islands.


During the past decade of independence, the FSM has experienced an astonishing number of positive changes and development. Anyone who has had the opportunity over time to note the progress must acknowledge that significant strides have been made in a number of areas. Several of these stand out as being important not only because of their contrast with the past but also because they augur well for the future of Micronesian development. They are:


When one looks at the major population centers of FSM today it is difficult realize how much has been accomplished in a very short time to improve infrastructure on the islands. Less than 15 years ago, for example, the only paved road on Pohnpei was about 100 yards. It passed in front of the former hospital building that served as the first FSM capital. The main streets of Kolonia on Pohnpei and Moen on Chuuk looked like stage sets for a 1920s Western movie. Clapboard buildings and rutted roads marked the town centers. Air fields were substandard and docks on most islands shabby and virtually unusable.

This lack of usable infrastructure was a legacy of decades of American neglect of such amenities -- an infrastructure gap that had to be filled before FSM could develop a tourist industry or, indeed, hope to foster sustainable economic development of any kind.

Today after 15 years, the change truly is remarkable. The country has invested Compact funds and other revenues heavily in infrastructure. A major effort has been on building and maintaining roads to facilitate intra-island transport. It is an expensive proposition. Most materials and all road-building equipment must be imported. The frequent rainfall makes maintenance a chore. The FSM Department of Planning has estimated that it costs $750,000 to build one mile of road in the FSM.

Other investments in transportation-related infrastructure involved the development of new airports for Pohnpei, Chuuk, and Kosrae and upgrading the airport at Yap. In recent years the FSM also has made significant progress in providing air service to major outer islands. Several small runways have been constructed on them. These primarily are serviced by two private airlines. Docks have been constructed at Kolonia, Weno, and other locations to facilitate inter-island boat transportation, allowing fish and produce to be brought for sale to market locations. The government has maintained a fleet of "field trip ships" that regularly ply among the outer islands bringing goods, mail, and passengers.

In addition to binding the people of the country more closely through this improved transportation infrastructure, these capital improvements, together with more reliable power and water, are necessary basics for FSM's economic growth and development.

Because of the investment FSM has made in infrastructure, the islands -- at least certain locales --have become considerably more desirable during the past decade as a place to visit and in which to invest. Among the amenities now provided by FSM to tourists and investors are:

To these benefits must be added the tropical glories of sun, sand and water that are the traditional attractions of the islands. These amenities suggest how far the FSM has come in just ten years toward making itself an attractive business and leisure location.

Progress In Telecommunications

No area of progress has been more dramatic in FSM than in telecommunications. During the mid 1980s, telephone service was limited to the major population centers in each state and communication with the outside world was difficult. For example, even as late as 1984 a call from Pohnpei to the United States was by single side-band radio. Contact was made with a source on the West Coast during only one hour each day. This individual then initiated a "phone patch" to permit the caller access to the U.S. telephone network. Long delays in completing calls were common. Inter-island communications similarly was exclusively by radio. Regular telephone service was available only in state centers to relatively few subscribers.

Little more than a decade later the ability to communicate inside FSM and with the world at large has improved exponentially. These advances can be laid to the vision and hard work of the Micronesians themselves. Recognizing the communications revolution sweeping the world they refused to be left aside with inferior equipment and outmoded techniques. In 1983 the FSM Telecommunications Corporation (Telecom) was established by the FSM Congress as a public corporation dedicated to providing efficient, cost-effective phone service to the citizens and residents of FSM. In 1987, Telecom obtained a $41 million Rural Electrification Administration (REA) loan. With that loan, it has been able to make dramatic improvements by expanding the scope of operations and availability of service.

The progress made over the decade from 1985 to 1995 truly has been remarkable:

This impact of regular telephone service on daily life in the population centers of FSM is profound. No longer do individuals need to walk or drive long distances to find out if a friend is home, or if the store has fresh fish, or the condition of a patient in the hospital. Rural stores are now able to use the phone to order goods and supplies for delivery, instead of making a trek into town. New business opportunities, such as taxi service operations and customized calling features in hotels have started in the past few years; they would not have been possible without an expansion of the telephone system. Government offices, including the United States' and Australian embassies, banks and travel agencies, are leasing facilities to send and receive international data communications. The availability of international direct dialing service also has spawned a host of facsimile machines throughout the FSM. Pay telephones operated with debit cards are widespread.

Almost as impressive as the strides in telecommunications during the past decade is the realization that the policy and management of these high tech activities have been planned, executed and managed by the Micronesians themselves. While outside technicians and expert consultants necessarily played a role in the systems upgrade, Micronesians have spearheaded the effort. Today only the Telecom's chief engineer is an expatriate.

For the future Telecom aims at attacking the continuing problem of providing adequate telephone service on and to outer islands. Because of the geographical dispersion of its population, the State of Chuuk has lagged behind other States in the availability of telephone service, but this is being addressed. At the other end of the technical spectrum, Telecom currently is negotiating to provide low-cost Internet access, thus linking Micronesians into the "worldwide web" of information. Already several "nodes" are in operation through an arrangement with CompuServe.

Housing -- A Story of Micronesian Self-Reliance

The 1994 Census in FSM reveals an astonishing statistic: more than half of all the housing units in the country were built in the ten years between 1985 and 1994, during approximately the first decade of the Compact. That is, in a mere decade FSM's housing stock was expanded by more than 100 percent. This dramatic increase was not the result of a giant World Bank or ADB loan, or a major government-sponsored program to build new housing. Rather it represents the decision of thousands of Micronesians to invest their income and savings in improving the quality of shelter for themselves and their families. While home loan guarantee programs extended by the United States encouraged this investment, the choice was made by the people themselves.

General Housing Characteristics

Traditionally Micronesians have lived in extended family-owned dwellings made of thatch, wood, and other locally produced products. These are the thatched huts that appear on South Sea island postcards and in romantic movies. About seven percent of FSM housing still is of that character, mostly on outer islands. For all its exotic appeal, the traditional thatched dwelling has considerable drawbacks. Just as it admits the breezes of the ocean, it is highly porous in the drenching rains that can pelt for days. It is hard to concentrate on other tasks when keeping dry is an all-consuming effort. Traditional construction also is useless in keeping out insects. Since the advent of other building materials in the islands, the populace has sought to substitute "modern" materials. The results often have been ramshackle combinations of metal, wood, and cement block that are both unsightly and impractical. These structures, like the huts, are no match for the typhoons that visit the region all too frequently. In the big winds such structures simply blow down, leaving their residents to patch together another dwelling.

One evident benefit of the Compact and its funding mechanisms is to permit Micronesians an opportunity to build decent homes, ones that will withstand time and typhoons. Thousands have taken this opportunity. It is evident visually as one travels the island that a substantial amount of building has occurred recently and still continues. This impression is given factual basis in the results of the 1994 Census in which a long series of questions were asked about general housing characteristics, use of utilities and home facilities. The data can be compared with the 1980 FSM Census that collected similar housing statistics. Perhaps the most interesting table is the one following that shows in real numbers and percentages, the age of housing units in FSM by state:

As shown, nationwide 52.5 percent of the housing stock dates from the 1985-1994 decade, almost a third in the second half of that period.

Chuuk State, being the most populated, led in the numbers of units constructed over the past two decades. Pohnpei, site of the FSM capital, where rental properties are in high demand, almost doubled its construction of units during the 1990-1994 period when compared with the five years immediately preceding.

Impressive as the numbers of new housing units may be, the quantity is being matched by the quality of the construction. The majority of the newer houses have concrete foundations rather than traditional wood footings. In 1980 only 14.6 percent of the FSM housing had either poured concrete or cement block outer walls. The 1994 Census showed 42.1 percent of the dwellings with such walls, with an additional 30 percent having metal sides. Roofing materials likewise have improved in quality. Thatch and wood use declined to 8.1 percent of the dwellings, while metal and poured concrete roofs increased to over 91 percent. There are, of course, differences among states. In Kosrae, cement roofs are favored over metal since most houses sit near the ocean and metal rusts in the salt spray. In Yap, stone or coral foundations are common.

Size of Dwellings

With the advent of the Compact, Micronesians not only built their homes more substantially, they were able to build them larger. Traditionally Micronesians have lived in one or two room dwellings. The 1980 Census showed 60 percent of the housing stock to have a maximum of two rooms. In 1994, over 55 percent of the homes had more than two rooms. The number of four room houses doubled and five room houses tripled. In fact, the average number of rooms per housing unit increased by about two rooms over a 14 year period.

It is evident that given an opportunity to upgrade their living conditions, Micronesian islanders have chosen to make their dwellings more commodious and convenient. Facilities like kitchens, bathrooms, and showers which once were outside the dwelling have been included in home design. For increased privacy, separate bedrooms are being built for parents and children.


Evidence also is clear about the willingness of the Micronesians to make use of the rapid increase in the availability of utilities to enhance their quality of life. Improvements in the supply of potable water and reliable electricity, particularly over the past decade, have made these amenities available to thousands of people who previously were without them.

In 1980 more than 71 percent of all dwelling units in FSM were completely without electricity, a sizeable majority. Today, that figure has fallen to 48 percent. A majority of the islanders now have power available for lighting, cooking and other household purposes...a significant step forward. Moreover, those dependent upon individual generators for power have declined to only about 4 percent. This means that a vast majority of those with electricity are getting it from a public utility. Recently a large outer island of Pohnpei, Pingelap, was electrified through an innovative solar energy project. More will follow.

An even more dramatic change is evident in the area of piped water. In 1980, only 14 years earlier, only 726 units in the entire country had any kind of piped water. By 1994, the year of the national census, that figure had risen to 7,276, an astounding increase. At the same time, units without piped water declined almost 14 percent. Those dwellings with both hot and cold water increased by 217 percent

This increase in piped water has made possible kitchen and bathroom sinks, bathtubs and showers, and flush toilets for many FSM citizens. In 1980, households with complete plumbing equipment throughout the entire nation were only 535. By 1994 that number had grown to 3,094, an increase of 478 percent. While a majority of dwellings (81.4 percent) still lack a complete plumbing package, many have one or two of the amenities particularly running water for kitchen use.

Sewerage also has seen significant progress. In 1980 only 4.8 percent of the units had access to a public sewer; only 3.1 percent to a septic tank or cesspool. The vast majority of Micronesians used other means of human waste disposal. Today modern sanitation methods are spreading rapidly. By 1994, 10.7 percent of household had access to public sewers, an increase of 218 percent, and 16.8 percent has a septic tank or cesspool, a 672 percent increase. Despite this progress, however, much remains to be done as more than two-thirds of the population are still without modern sewerage.

Along with better sewerage has come increased use of flush toilets. In 1980 less than 15 percent of dwelling units had flush toilets, either indoors or outside. By 1994 about 1 in 3 houses (34.4 percent) had modern toilet facilities. That still left two of every three dwellings without any flush toilets. While the use of outhouses remains a common method of human waste disposal, the number of such units are falling steadily. Moreover, a number of ecologically sound technologies, such as water-sealed and dry-composting waste disposal units, are making inroads.

Indoor bathtubs and showers have seen dramatic increase in the years between 1980 and 1994, with most of the gains over the past decade. In 1980 732 units countrywide could boast either. By 1994 that figure had risen to 7,706, a 1,000 percent increase. Today about half of all households have indoor bathing facilities of some type and no longer are dependent upon the sea or streams.

In summary, Micronesians have recognized the need to upgrade their dwellings in quantity and quality. In little more than a decade the housing stock has improved dramatically. This has occurred because individual citizens have seized the opportunities open to them by the Compact for improved economic conditions, and have used them effectively.

Private Sector Development: The Construction Industry

As noted earlier, an entrepreneurial spirit existed among the Micronesians in the past which, if given encouragement, resulted in a plethora of small and medium-sized businesses. In previous times this spirit has been expressed chiefly through the establishment of locally-owned and operated retail stores. Since the advent of the Compact the kinds and types of local businesses have expanded to encompass a variety of trades and services, including automobile repair, electrical services, restaurants, taxicab operations, and perhaps most notable, the construction sector.

Before 1979 construction in FSM essentially was in the hands of the TTPI. If something substantial needed to be built, the colonial government did it. Before 1985 essentially there were no indigenously-owned and operated construction companies and little incentive for creating any. From the outset, however, the FSM government has seen the importance of developing a local Micronesian construction industry. The First National Development Plan (p. 173) called for the national government and states to facilitate this development through legislation, skills development and favorable financing. The Plan was explicit about the kind of laws to be enacted at the National and State Government levels. It called for the establishment of business construction standards, subdivision laws, protection for small contractors through lien laws, and new regulations affecting financing that would permit workable mortgages, license laws for skilled labor, and protection against shoddy design and workmanship.

While not all of these regulations have been put in place in every State, a sufficient legal regime has been established during the past decade to render the construction industry a singular example of growth in the FSM's private sector. Currently there are 22 construction companies in FSM large enough to have listings in the telephone directory. One of them has offices in each of the four States; another operates in both Yap and Pohnpei. The majority, however, are established in just one State. These companies provide services that include architectural design, engineering, general construction, and importation of construction materials and supplies. Their rapid growth is indicated by the fact that the 1994 telephone book listed only eight construction outfits.

The employment provided by these organizations also is impressive. Construction ranks a close second to general merchandise-retail both in the numbers of persons employed (960) and the annual value of payrolls, US$ 3.4 million, according to 1994 FSM Social Security statistics. Comparable figures for 1989 were 656 and $2.4 million, showing the growth in construction activity during the past five years. Indigenous construction firms are responsible for the dramatic increase FSM has experienced in home-building during the past decade, as well for the continued development of infrastructure on the islands. A significant number of FSM youths have been trained in the construction trades during the Compact period at the U.S. Job Corps Center in Hawaii. This, together with the results described above, provides evidence of the success of the Compact in contributing to the indigenous capacity for development in the FSM.

Moreover, the Public Works Divisions that during TTPI governance built and maintained roads, bridges, airports, etc., were converted to parastatal "transport authorities" in each State following FSM independence. These are public authorities, each with their own board of directors, which may build roads or other infrastructure or may supervise such work by private firms. Some of these authorities have become quite competent. For example, when the TTPI-built airport runway in Pohnpei developed a dip several years ago, the Pohnpei Transportation Authority saw to its repair, rather than bring in an outside construction team. U.S. experts, dispatched from Hawaii to monitor the activity, were highly complimentary of the quality of the work.

Attention is being given to the further privatization of the authorities. Increasingly, they are bidding on construction jobs along side private firms. In the future some may be rendered completely private.

The FSM and the Environment

The FSM is a place of rich natural beauty. For example, writing in Islands magazine recently a visitor said:

There is a diamond in the Carolines called Pohnpei by its gentle folk, its peak covered with jungle and capped with cloud, and its shore ringed with mangrove. Luxury in Pohnpei is measured in voluptuous greenery, not by technology.

Indeed, many if not all of the country's 607 islands would fit that description. The benefits of sun, sea, sand, and greenery have been lavished on this region of the world. But islanders know how fragile these exquisite gifts are. Global warming and the consequent rising seas spell peril for many beautiful atolls. As a result, as detailed earlier FSM has played an active role in international fora concerned with these effects.

At the same time the nation has moved to clean up at home: Aluminum beer cans strewn along the roads; untreated human waste fouling coastal areas; slash and burn agriculture practiced on forested hillsides. All these have been typical in the FSM. But with the coming of independence a firm determination has taken hold among the people to deal with these problems. In 1992, under the guidance of a Presidential Task force on Environmental Management and Sustainable Development, a nationwide environmental management strategies (NEMS) report was developed and adopted as a national plan. The effort, funded by the ADB and the Australian Government involved technical help from the South Pacific Regional Environmental Program (SPREP). The plan had four objectives:

Environmental Awareness and Education

FSM's awareness and education efforts have focused on introducing environmental education into the primary and secondary school curricula, developing "grassroots" community understanding, training government extension workers in environmentally sound practices, and raising the environmental awareness of government leaders and civil servants. Because the primary responsibility for environmental protection lies with the states, however, these efforts have not been uniformly pursued across the country.

Nevertheless, it is clear that Micronesians young and old have understood and taken these messages to heart. In a colonial situation, "ownership" of one's surroundings is clouded by feelings of powerlessness and resentment. In an independent and self-governing country, responsibility is much easier to understand and accept. Clearly in many places in FSM an important psychological shift has occurred. Youngsters are learning in school what is ecologically correct; their elders are learning from the wider community and the examples of their leaders. Three vignettes:

In the United States the recycling movement is assisted by the economic value cans, bottles and paper represent. Because of FSM's remote location the cost of transport well outweighs any value of many such items, so that most trash is bound for landfills that themselves can pose environmental hazards. But a beginning clearly has been made toward cleaning up.

Manage and Protect Natural Resources

An example of what has and can be done in this area is epitomized by the development of an integrated management system for the Pohnpei Watershed. In 1987, in order to prevent further destruction of forests and soil erosion, new laws were passed to protect the island's watershed forest reserve and coastal mangrove stands. Quickly, however, problems occurred.

Community participation in developing the laws had been woefully lacking. As a result the regulations failed to recognize traditional Pohnpeian resource uses in the upland forests; local communities rejected them. Government boundary survey teams were threatened and turned away in many areas of the islands and several near-violent incidents occurred.

Out of that experience developed a Watershed Steering Committee (WSC) that brought together representatives of state government agencies, local communities, environmental groups and technical specialists. Based on meetings in the municipalities and field surveys, the WSC determined that three areas of the island required priority attention and began a process of watershed education and negotiation. Contemporaneously other encouraging developments were occurring. According to a 1993 Nature Conservancy report to the Asian Development Bank:

At the same time, a local NGO group, Woaun Koaping Soamwoai Board, made up of representatives of four villages bordering the watershed area and their chiefs (Soumas en Kousapw) in Kitti Municipality, contacted the Pohnpei State Department of Lands and the Division of Forestry. The Kitti group had been organized one year earlier to address land issues in their area, including the proposed Watershed Forest Reserve. Convinced that watershed forest protection was needed in their area, but desiring more input in watershed management, the group agreed to work with the Division of Forestry to conduct a watershed education program and develop a local management plan for the Watershed Forest Reserve area. The resulting program involved this group, the community members of the four villages, and the WSC in a series of education and negotiation meetings held both in the communities themselves and in Kolonia, the island's district center.

In ensuing years the watershed education and negotiation program has been extended around the island of Pohnpei with considerable success. The program has turned public opposition into significant community support. New rules and regulations based on community input have been formulated, enacted and put into effect.

One result of this developmental process is a Watershed Management Strategy to be implemented through the end of the century, prepared by the Pohnpei Watershed Project Team, with funding and assistance from the Nature Conservancy, ADB, and South Pacific Environment Program (SPREP). Issued in February 1996, the goals of the strategy are to:

The strategy calls for programs in seven areas, from sustaining a community planning and management function to a system for monitoring compliance and results, and no less than 31 "key actions" that must be undertaken in a coordinated way by all concerned parties. Ultimate success or failure of this process will not be known at least until the Year 2000, but an encouraging beginning has been made.

Moreover, the efforts on Pohnpei represent a model that is being watched and emulated by other States of the FSM as a practical way to put conservation measures in place to reserve the long-term trends of natural resource degradation.

Environmental Sanitation

Solid waste disposal and sewerage are recognized as one of the most troublesome environmental problems in the FSM. Accordingly, a series of programs have been developed in all the States that aim at improving waste water management and pollution control. These programs necessarily differ from state to state because of the varying environmental circumstances but some elements are common to all:

In short, the problem of environmental sanitation and supplying clear water are by no means resolved. But FSM and the States have made important gains in these crucial areas of environmental sanitation.

Integrating Environment and Development

From the outset of national independence Micronesians have shown considerable sensitivity toward the environmental costs of economic development. That concern frequently has been part of a reluctance on the part of many Micronesians wholeheartedly to embrace large scale tourism or indiscriminate foreign investment. The need to maintain and upgrade environmental quality while establishing a basis for a tourist industry was recognized in the first National Development Plan, but no plan of action was proposed. Nevertheless, the FSM Development Bank in its assessment of investment proposals applies an environmental matrix. While it is clear that considerably more time and attention will be required in order fully to integrate environmental concerns with the needs for economic development, Micronesians are awake to the requirement and moving on several fronts.

In summary, FSM clearly has considerable work to accomplish if the ecology of its islands and the health of its people are to be safeguarded. But the steps that have been taken since passage of the Compact contain heartening signs of real progress.

Human Resource Development in FSM

The legacy of colonialism has been felt particularly in the area of education and training. As a 1994 study prepared for the Asian Development Bank stated: "The public schools in the FSM have historically been used to advance the interests and objectives of colonial powers." As a result, schooling sometimes has been seen as something alien, imposed from the outside. While these attitudes are changing, there is no doubt that the content of education, the curricula, had been more attuned to what the occupiers brought from their own systems than what was suited to the particular needs of Micronesian society.

Although in some communities a suspicion of education lingers, attitudes among Micronesians have changed significantly now that the education of themselves and their children is in their own hands. During the past decade, strides have been made toward eradicating those elements of curriculum that have little to do with Micronesian needs and aspirations and replacing them with courses and course materials more reflective of indigenous realities.

Statistics bear out the progress that has been made in education since Micronesian independence. Census data on the educational attainment of the population aged 25 years and older shows that the proportion of those with no schooling fell from about 25 percent fully one-quarter of the population in 1980 to about 15 percent in 1994. Moreover, the proportion of the population that completed secondary education increased from about 25 percent to 47 percent over the same period. This marks a significant achievement for a new and developing country.

Notable too, educational attainment for females was more pronounced than that of males. The proportion of females with no school dropped from about 30 percent in 1980 to about 18 percent in 1994. In other words, in 1980 nearly one women in every three had no grade completed compared to one in six in 1994. This improvement held true for secondary education levels as well. The proportion of females with at least a high school education increased from just 12 percent in 1980 to about 26 percent in 1994. Likewise, the proportion of females with some college level education also increased by about eight percentage points (from about 3 percent to about 11 percent) over a period of a decade and a half.

These gains have been made in the face of some fundamental problems facing human resource development in FSM. They include:

Despite these and other problem areas, the FSM can point to significant advances in reforming its educational system. Because education is a state function, the 1994 Asian Development Bank report on Human Resource Development in Micronesia points out a number of advances in each state, particularly in educational administration:

Chuuk State is cited positively for its community based management initiative. "It is essentially the ideal structure for administrative excellence in the future," said the ADB report. Chuuk also draws approval from the experts for developing a management information system and thus having a procedure for mobilizing data on a rapid retrieval basis. It also gets high marks for having a designated position and function for educational planning.

Kosrae draws commendations for its efforts to draw closer to the local community. It has a designated community liaison officer whose responsibility is forging a bond between the communities and the schools. It also has broadened the scope of its school library functions to become a learning resource for the community as well as the school. "Its vision, structure and programming are exemplary" says the ADB Report.

Yap, the report states, has made strides toward overcoming the differentials in education between state centers and outer islands by dividing administrative responsibilities between Yap proper and the outer islands. This ensures that the outer islands are not neglected. The administrator for the outer islands has radio contact with all principals of outer islands schools on a daily basis and thus can keep abreast of their needs and circumstances.

Pohnpei is singled out for being the only state that has included preschool education as part of its organizational structure. The ADB expert team noted that Pohnpei State Department of Education has recognized that experiences of the child at the preschool level has significant implications for the child's future academic success. Pohnpei's inclusion of a preschool element with in its elementary education division is, according to the experts' report, the most effective way to ensure that those educational elements are beneficially linked.

FSM's educational systems also have been singled out for recognition in other contexts. The Pacific Region Educational Laboratory (PREL) is a U.S. funded unit that is charged with research and information dissemination to the State of Hawaii and nine other island entities in the Pacific, including the four states of the FSM. In a recently re-issued paper on educational change in the Pacific, PREL was positive about educational developments in curriculum and teacher training taking place in FSM. They ranged from demonstration schools in Chuuk that are trying out instructional programs and innovations which, when successful, are being introduced into the general curricula and to the outer islands, to staff development efforts in Pohnpei that involve setting aside time one day a week for teacher reflection and professional development to improve instruction. Yap drew praise for a program that helped insure that local trainers skilled in teacher professional development would be made available on a regular basis to schools and teachers. Kosrae was commended for its decision to move substantial decision-making and responsibilities directly to schools and away from centralized administrations, always a difficult decision.

It should be noted that these attempts to find a better way to organize, administer, develop, and train for improved education, the work of barely a decade, takes place in a system in the midst of basic transition. Staff development is a critical element. While observers believe that the professional personnel involved in FSM education are generally competent and work diligently at their duties, less than 10 percent of approximately 2,100 teachers system wide are specifically prepared for undertaking their assigned duties. About one-third of teachers currently in the system have at most a high school diploma. And while more than half have associate degrees in either arts (AA) or sciences (AS), those certificates do not necessarily prepare individuals for teaching. Teachers with B.A. or B.S. degrees represent only about 14 percent of the total and not all of them have had pedagogical training.

The FSM, however, has recognized the deficiencies and has been able to secure a special grant from the U.S. to help prepare teachers. This program was funded for $247,181 in 1994 and marks a coordinated effort between the national government and the states. The states submit proposals according to a predesignated format indicating the status and needs of the teachers in their jurisdictions. To its credit, the FSM also has initiated a program of testing its students to measure progress in language arts and mathematics. Through a contract with the Micronesian Language Institute in Guam, the FSM Department of Human Resources developed and administered nationally a test for both sixth and tenth grade students in the spring of 1995. The results were not encouraging but they do provide baseline data against which to measure future advances. They also pinpoint areas of weakness in academic preparation that require special attention.

The resolve of the nation to remedy the "many shortcomings" in the current education system was expressed at the FSM 1995 Economic Summit. There the National Education Committee made clear dissatisfaction with the current state of human resource development in the country. It recommended that reform of the education system be a policy and financial priority, that both formal and informal education be encompassed, and that self-reliance be emphasized. The Micronesians are finding that taking over for the TTPI in education, while essential to their drive for nationhood is a long and difficult process. They have, however, demonstrated their determination to improving the quality of education for all their people.

Symbolic of FSM's resolve are the newly-open facilities for the College of Micronesia-FSM. Its gleaming new classrooms and dormitories at the Palikir, Pohnpei, campus thronged with young men and women seeking the kind of education that will provide them jobs in the 21st Century. Classrooms accordingly are fitted with up-to-date computer technologies and other modern amenities. Here a new generation of Micronesians is being provided with skills and capabilites to fit them for future leadership roles in their Nation.


Despite the significant gains made during the past decade, the FSM recognizes that the productive sectors of the economy lag dangerously behind. The nation remains heavily dependent upon Compact payments and other programs funded by the United States. As a Government representative told the Asian Development Bank's Consultative Group of Donors Meeting: "These payments have underwritten the development of the current service-based economy to the extent that the economy is now dominated by public sector expenditures." (December 6, 1995)

Moreover, some mistakes have been made in attempts to develop FSM's productive capabilities, particularly its investments in fisheries. Because fishing has been a way of life for the island people they have assumed that commercializing their artisanal pursuits offered no special challenge. The hard way, they have found out their errors. But FSM is not alone in its inability to capitalize fully on the riches of the sea. As the 1994 Global Trends and the Future of the Pacific report stated: "Only a few countries have been successful in establishing domestic fishing fleets, and only a few of those have ever turned a profit."

What is refreshing is the willingness of the FSM leadership to acknowledge past mistakes and set out on new paths to remedy their shortcomings. These are not just steps imposed by the ADB but reforms that generally have been agreed to or around which a consensus has been achieved as a result of nationwide deliberations. We must constantly remind ourselves that FSM is a democracy with political and economic power disbursed among 10 separate governmental units (the legislative and executive branches of the four States and National Government) with an overlay of the traditional system with its own chiefs and institutions. Achieving an agreement on reform through a democratic and participatory fashion in such a country can be extraordinarily difficult.

With the encouragement and help of the ADB, however, the FSM in November 1995 the country convened the First Federated States of Micronesia Economic Summit aimed at achieving a national consensus on strengthening the economy and reducing its reliance on foreign assistance. This signal event included not only political figures but traditional chiefs, educators, community leaders, organization heads and distinguished individual citizens from all parts of the country.

After several days of deliberation, the FSM Economic Summit endorsed a number of goals, including:

These goals are to be achieved while improving national health and educational standards, all within the multi-state, democratic framework of the FSM political system. These same goals with some minor variations also were espoused over ensuing months by each of the FSM States. Once again the process was highly participatory and outcomes clearly represent the collective judgment of hundreds of Micronesians.

But talk is especially cheap in the cause of sustainable development as those who have been involved in it globally know too well. The Third World landscape is littered with the well-crafted plans and documents of nations that give lip service to reform but hesitate to take the least steps toward realizing it.

FSM appears to be setting its own standard of serious intent in working to give concrete meaning to the broad goals set by the Economic Summit. It has invited the Asian Development Bank to convene a Consultative Group (CG) of donors as a forum for discussions between the FSM and key institutions and donor countries on critical issues of development assistance and economic sustainability. The first meeting of this group occurred in December 1995 at which the FSM received full endorsement of its strategy and the practical steps to bring it about.

The Asian Bank has provided a special grant to permit the FSM to support a policy advisory team to assist the FSM government to design and implement a program of practical if frequently difficult steps toward policy reform. Using a "carrot and stick" approach, the Bank has promised a sizeable loan to FSM on a phased basis to hasten government downsizing by providing for exit bonuses for those choosing to leave government employment before retirement. Those bonuses are expected to provide business development "nest eggs" for many bright and educated Micronesians for whom previously a government job was the best or only option.

Before the funds are being made available, however, the National Government and each of the four States must show concrete achievements on a number of previous agreed specific benchmarks of performance. The table below summarizes the results to date in seven key areas of concern.

The specifics of each of these areas is worth dwelling on in order to emphasize the important decisions that already have been made and are daily being carried out under the watchful eye of the ADB resident team.

Public Service Down-Sizing

The agreed plan calls for each of the States and the National Government to reduce the size of their work forces significantly by 1998. Each entity has established a Joint (executive/legislative) Restructuring and Reform Committee, has set personnel reduction targets in their FY 1998 budget process and has imposed some type of hiring freeze or restrictions for public service positions. Some of these planned reductions are considerable: Cuts of 30 percent are projected for the National Government by 1998, for Chuuk 29 percent and for Yap 28 percent. Current budgets for each political entity reflect these objectives. Personnel reductions currently are underway.

Wage and Salary Reductions in the Public Sector

In order to ameliorate the strong bias toward public sector employment in the FSM system, reform plans include wage/salary reductions for government workers. In FSM's largest state, Chuuk, that has involved:

Chuuk State actually had taken all those steps by September 1996 and had met its obligations under the ADB agreement in that critical area. Similar requirements also were met fully by the National Government and Kosrae, according to ADB documents, with Pohnpei and Yap well on their way to completing the wage/salary reduction process.

Increasing Domestic Revenue Generation

This area of reform includes support for amendments to national tax legislation, a study of revisions to current codes that would increase revenues, improving the collection rate for existing taxes, and analyzing means of increasing revenues through public service user fees. Here Yap is farthest along in the process the National Government and the remaining States were expected to complete this component by the end of 1997.

Restructuring Government Departments

As the U.S. goes through a process of "re-engineering" government so are the National Government and States of FSM. For most this involves a review of existing public services staffing patterns and functions and tying the process to the FY1997 and FY1998 budget milestones and targets. For some states it means going beyond the current picture to identify government functions to be eliminated, commercialized or privatized. In this process Kosrae, Pohnpei, and Yap are the farthest advanced.

Reforming Public Utilities

Because subsidies for utility rates, particularly electricity, have proved to be such a drain on public revenues, a key reform is charging utility customers the true costs of services. In many developing countries, the elimination of utilities subsidies has been a highly explosive issue on which economic reform efforts sometimes have foundered. It has been no less difficult in FSM, but the process has gone forward. In Pohnpei, for example, the legislature rejected a gradual phase-out in favor of going "cold turkey." The ensuing public outcry seemed for a time to be imperiling the reform movement, but has had no lasting negative effects. Following Pohnpei's lead, Kosrae and Yap have completed the process of ending utility subsidies and Chuuk is expected to follow soon. Restructuring Public Enterprises

As a holdover from its colonial past, the FSM National Government and the State Governments are much more involved in a range of commercial activities than is true for countries like the United States. Government direct or indirect ownership exists in transportation, fuel, fishing, construction and other productive enterprises. As in evident from experience in other developing countries, most recently in the former Soviet bloc reforms in this area are difficult and painful for decision-makers. FSM is no exception. But here too some movement has occurred as Yap has taken the lead in a financial and functional review of its public enterprises to assess operating costs, staff structure, service provision, subsidy receipts and other revenues. The National Government and the other States are planning similar analyses.

Supporting Private Sector Development

Finally, as development experience has shown us, government support for private sector development can be effective when thoughtfully applied. The programs being followed are multi-faceted, involving as many as 11 separate programs by some states. Of top priority is improving the investment climate by revising foreign investment regulations and procedures, ensuring a land leasehold system to provide for long-term leases, and introducing a concept of "eminent domain." A second series of activities involve improving financing opportunities for local entrepreneurs and outside investors alike, and a third, developing a public sector investment program to support key economic infrastructure developments. Here again the entities of the FSM have begun to move in positive directions. All have completed their work on a plan to use public funding for infrastructure to assist the private sector. Most are working on new legislation aimed at improving the investment climate and expanding the availability of financing for entrepreneurs.

In summary, the process on which the FSM currently is embarked is a critical one. As the FSM Secretary of External Affairs told the Consultative Group meeting in late 1995:

There is...widespread recognition that the structural adjustment needed is so profound that it will require years to carry out, that reform will need to be an ongoing process for years to come.

This challenge remains to the FSM. The country has come a long way and achieved much on a number of fronts during the past decade. It also has shown a willingness to learn from its mistakes and to act vigorously to remedy them. On those counts alone the first ten years of national life under the Compact must be recorded as a notable and commendable success.

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