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October 1, 1998


The success of the compacts of free association was given mixed marks by Allen P. Stayman, Director of Insular Affairs, in his testimony on October 1 before the House of Representatives Committees on Resources and International Relations.

Stayman agreed with officials of the Departments of Defense and State that national security and international relations objectives of the compacts had been achieved but expressed concern about economic development.

The compact with the Republic of the Marshall Islands and with the Federated States of Micronesia (FSM) was signed in 1986, and the compact with Palau in 1994. The financial and programmatic assistance under the compact will end in 2001 for the FSM and the Marshalls, and for Palau, eight years later. The transfer of funds to these two nations will continue at current levels until 2003 if negotiations for an extension are ongoing. The U.S. payments to the Marshalls under the compact are now about $40 million a year, and about $78 million a year for the FSM.

Regarding the islands' economics, Stayman said that "insufficient attention was paid to economic planning." He noted that the freely associated states "did not have the necessary experience and expertise for good economic planning and implementation, and did not require the planners they employed to develop viable economic plans with specific goals, strategies, and milestones and a clear linkage with United States financial assistance."

As a result, he said that the private sector in the islands has not grown as much as it could have, and that the economies of the two nations are too dependent on the flows of grant money from the United States.

Stayman said that OIA has contributed funding for the Asian Development Bank to provide economic planning expertise for use by the freely associated states (FAS). Teams of economists are stationed in the Marshalls and FSM to provide advice to the national governments.

Summing up his agency's experience with the funding of economic activity in the FAS, Stayman said that "Federal program assistance works the best when the assistance is available only on a discretionary basis, and FAS officials must persuade Federal agencies of the merit of the proposed program. The requirement for a local funding match can often help to ensure local commitment to the program, including political support."

Stayman agreed with the generally favorable comments made by representatives of the Departments of Defense and State, on the cooperative work with the FAS in the areas of defense and international relations. (Representing the State Department at the hearing was Assistant Secretary Stanley Roth, and Deputy Assistant Secretary Kurt M. Campbell spoke for the Department of Defense.)

"Above all else we never should forget that the FAS have, despite substantial challenges, created solid democracies. This reflects well on the citizens and officials of these nations, and also on their association with the United States," he concluded.

For additional information: David North Office of Insular Affairs U.S. Department of the Interior TEL: (202) 208-3003

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