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By Aldwin R. Fajardo

KOROR, Palau (October 21, 1998 - Marianas Variety)---A key legislator here has raised concerns that Palau may suffer the same fate as the two other member countries of the Free Associated States (FAS), if the government continues to spend compact money as it has during the last four years.

Senator Roman Yano, chairman of the senate committee on resources and development, said Palau should be forewarned by the failure of the Federated States of Micronesia and the Marshalls to foster economic development through the Compact of Free Association.

"I am afraid we may head in the same direction as FSM and the Marshalls if we continue to spend our compact money the way we did the last four years," Yano told Marianas Variety.

He explained that Palau faces a similar dilemma as its two co-members to the FAS, especially if the government fails to use the compact money in projects with direct benefits to economic development.

"The way we are spending now, in areas of Capital Improvement Projects (CIPs), we are heading in the same way. We should realize that compact money is a one-time injection of funds from the United States, thus, (it is to) be used as investment," he said.

Yano pointed out that the fate experienced by the Marshalls and the FSM should come as a lesson to the Palau government to spend its compact funds wisely.

The Marshalls Islands and the FSM, according to Insular Affairs Director Allen Stayman, fell short in giving insufficient attention and priority to economic planning

"The Freely Associated States did not have the necessary experience and expertise for good economic planning and implementation," Stayman told members of the U.S. House committees on resources and international relations.

He added that both the Marshalls and the FSM failed to require the planners which they contracted to develop viable economic plans with specific goals, strategies, and milestones, as well as a clear link with the U.S. financial assistance.

"As a result, 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 U.S.," Stayman said.

He added that OIA has contributed funding for the Asian Development Bank (ADB) to provide economic planning expertise for use by the FAS.

Teams of economists have been deployed and stationed in the Marshalls and FSM to provide advice to the national governments.

The insular affairs chief stressed that his office has never failed to provide funding for the economic activity in all three member nations of the FAS.

"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," he said.

The Marshalls and the FSM, together with the Republic of Palau, comprise the FAS, a group of independent nations affiliated with the U.S. through the Compact.

The agreement with the Marshalls and with the 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.

The transfer of funds to these two nations will continue at current levels until 2003, while negotiations for an extension are ongoing.

The U.S. payments to the Marshalls under the Compact are now about $40 million a year, and abut $78 million a year for the FSM.

The compact with Palau covers 50 years and defines political , economic, and military links with the U.S.

It enables Palau to conduct its own domestic and foreign affairs while the U.S. retains control of defense and strategic matters as well as exclusive access to Palauan waterways.

For this exclusive access, the U.S. provides financial aid in the form of rent payment amounting to about $627 million during the first 15 years of the Compact.

For additional reports from the Marianas Variety, go to PACIFIC ISLANDS REPORT News/Information Links: Newspapers/Marianas Variety.

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