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October 1, 1998

Mr. Chairman, the government of the Federated States of Micronesia (FSM) is very grateful for the opportunity to appear before you today to discuss the Compact of Free Association and the upcoming renegotiation of certain of its provisions. We agree with the Committee Members that it is none too early to begin sharing with you our assessment of the Compact experience thus far, and our tentative views on what may lie ahead.

First, I should refer to the visit to Washington last month by our President, His Excellency Jacob Nena, who came with the intention of conveying to the United States government personally, and at the highest possible levels, the strength of our people's ongoing commitment to the Compact relationship. Today I would like to concentrate on the points that he made in a very successful series of meetings with Administration officials and with Members of Congress. He also had the fortunate opportunity to discuss these matters at some length in a conversation with President Clinton.

The most important point that was stressed by President Nena, which I want to emphasize to you today, is the profound gratitude of the people and the government of the FSM for the assistance that the United States has extended to us over many decades - throughout the forty years of the Trusteeship, and under the Compact. Those of us in the current generation of government in the FSM, along with our people, have grown up and lived in an emerging country that remembers past colonial rule, but has known throughout our lives the faithful encouragement of the people and government of the United States.

We realize that from your perspective this is only a small part of your global concern, but we ask that you not overlook the appreciation felt by the FSM people for our good fortune in having the opportunity to model our political, social and economic development after the example of the greatest Nation in the world.

More particularly, the FSM remains grateful for the strong support given by the United States, from the very beginning of our Compact relationship, to the FSM's emergence into full sovereign statehood within the international community. This consistent support has played a significant role in what we believe to be the Compact's great success, and in the fact that the relationship of Free Association remains strong.

One indication of the strength of the relationship is that the FSM has steadfastly supported the positions advanced by the United States at the United Nations and elsewhere in the international community, even when our positions have occasionally placed us at odds with our developing country partners and some of our fellow Pacific Island countries.

Another is that despite the presence within the Compact of elaborate dispute and claims resolution procedures, which were forged out of months of intense debate during the original Compact negotiations, there has not been a single instance when any difference of views between our governments could not be resolved through informal discussions. This is testimony to the dedication of all our respective officials who have worked under the Compact through the years, and to the fact that the guiding document is a sound expression of common interests.

We are keenly aware that strategic and security considerations are the cornerstone of our free association relationship with the United States. Thus, we have worked hard to give more than just lip service to the responsibilities we assumed in the Compact. The FSM has been strictly supportive of United States defense and security policy in the Region, such as, for example, by refraining from joining its neighboring island countries in the South Pacific Nuclear Free Zone Treaty (SPNFZ), and by refraining from signing the Convention against Land Mines. Our consistent support for the State of Israel, while motivated in part by internal considerations, has also been with an eye toward supporting US policy in this important security area.

Our regular direct contact with the Department of Defense through the annual meetings of the Joint Committee on Military Affairs has been a highly useful channel of communication. In addition, we regard the service of the Civic Action Teams as invaluable to our people at the community level and a constant reminder of our close relationships.

As you know, Mr. Chairman, the Compact as a whole has no termination date, and was envisioned to create a long-term relationship. However, Section 354 of the Compact says that the defense provisions are "binding" for 15 years and thereafter as mutually agreed. This provides the opportunity during our renegotiations for any needed readjustment. For its part, the FSM remains satisfied with and committed to Title Three and to that end would like to remind the United States of the availability of locations within the FSM for Defense activities such as the prepositioning of forward deployment supply ships (a matter that was reiterated by President Nena with Assistant Secretary Kramer at the Department of Defense during his Washington visit).

It is the FSM's view that despite the end of the Cold War the uncertainties in Asia necessitate a long-term U.S. security umbrella throughout the former Trusteeship area. It was the consensus view of the original Compact negotiators, and remains our view, that continued economic progress and stability within Micronesia serves that security interest.

The fifteen years of economic support provided in the Compact were never envisioned to produce full self-sufficiency within that time period, and in fact, the Compact reflects an awareness that some level of continuing assistance will be needed. While the FSM today still has a long way to go in terms of economic development, we feel that from the standpoint of due diligence, the progress made in the relatively brief time so far, together with our currently building momentum, justifies an appropriate level of continued economic assistance by the United States, beyond the first fifteen years.

Mr. Chairman, about five years ago, we in the FSM, as well as our friends in the United States and elsewhere, began to realize that the impressive improvements in infrastructure made possible by Compact funding were not being accompanied by the degree of economic growth we had hoped for. The long-term implications of this situation were quite ominous, and something obviously had to be done. With the help of the Asian Development Bank, the United States, Japan and other donors, an FSM-wide economic self-analysis was commenced.

National and State economic summit meetings were held to clarify and redefine our economic goals. Then, three years ago, the FSM began making serious and painful course-corrections to reform its governmental structure, downsize its governmental workforce and energize its private sector. The process, known as "structural adjustment," is well advanced, but will be ongoing for some years to come. It includes efforts to improve efficiency and to develop our own indigenous statistical and planning capabilities, including our capability to evaluate and measure economic progress.

This is a two-pronged program that involves, on one hand, Government and Public Enterprise reforms, and on the other, Private Sector reforms. On the government side, we are reorganizing and downsizing our institutions and improving our tax structure, in order to move along the adjustment path to sustainable finances and rational service levels. On the private sector side, our reforms are designed to improve the economic environment for private sector growth, especially in those productive activities that earn dollars from abroad. This means, among other things, reducing the role of government in productive activities, and restructuring our legal and regulatory environment to encourage private sector activity and investment, especially foreign investment.

It is still somewhat early to project results, but we are encouraged by tangible actions taken thus far that have been quite difficult, politically.

One State-specific example is worth noting. Many of you will be aware that our largest State - the State of Chuuk - faced a financial crisis of great magnitude starting in 1995. I will not burden you with the details of measures that have been taken, but I am happy to report that the crisis has been overcome.

The arrears that Chuuk built up through domestic and offshore debts have been fully acknowledged and partially repaid. Based on current and credible projections, Chuuk's operating deficit will become a growing surplus and creditor debts will be paid in full by June of 1999.

Mr. Chairman, it is only natural that in approaching the question of the future of our free association with the United States we must take stock of the Compact experience during the first 15 years. This includes the development of the world security picture and its outlook, but it also includes the need to account for how the Compact has worked from the standpoint of its developmental goals, and what changes might need to be made in the Compact arrangements.

To that end, for over a year now, the FSM, on its own initiative, has mounted a major undertaking to identify its reasonable and appropriate needs for ongoing United States assistance after the first 15 years, taking into account the structural adjustment, the outlook for other sources of assistance and its internal capacity for revenue generation.

This undertaking is being conducted by a representative body constituted by law, known as the Joint Committee on Compact Economic Negotiations, chaired by former FSM Vice President, Petrus Tun. The Committee is supported by a full-time Secretariat headed by myself as its Executive Director, with the assistance of development economists, an attorney, and other expert consultants as needed. We expect this endeavor to be completed prior to the opening of the renegotiations late next year.

Mr. Chairman, recalling my earlier remarks expressing appreciation for all that the United States has done, I would like to close by saying that the FSM does not approach the question of continued United States assistance as asking for "foreign aid," nor do we assert an entitlement, but rather, we respectfully suggest that such assistance, should it be forthcoming, will continue to be a key aspect of a unique and mutually beneficial partnership between our two nations - a Partnership in Development for Self-Reliance and Security.

I thank you once again for inviting us to appear today. We in the Federated States of Micronesia look forward to continuing our dialogue with the United States Government, including with the Congress of the United States, from this day forward.

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