YAP AIRPORT REPAIR: A SUCCESSFUL MODEL FOR THE FSM

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By Kevin O'Keefe

KOLONIA, Pohnpei (December 10-20, 1998 - The Saipan Tribune)---The Yap Airport repair project is complete and the runway now meets all international safety standards. This is good news since the runway had been in such need of repair that the State might have had to close its airport. Yap's leaders and the project managers should be congratulated for completing the project months ahead of schedule and within budget.

Yap's success can be used as a model for the FSM. Following the Yap model would be better than the now common practice --sadly demanded by the voting public-- of dividing most development dollars by election district at the national, state and local levels.

In addition to following international best practices in competitive bidding and project oversight, the elements of Yap's success included:

Is Yap Just "Different?"

I've been in the FSM long enough to hear people dismiss successes in Yap with the throwaway line, "Well, that works in Yap, but it won't work for us." But I believe Yap's budget discipline, implementation of economic reforms, and mobilization of funds for the airport project are simply signs of early adoption of the kind of behavior needed throughout the FSM to adjust to new economic realities.

The early days under the Compact of Free Association were different. Development dollars went to government operated commercial enterprises and to constituency-based projects. Given the realities in those days, perhaps such spending was understandable. But the FSM now faces four new realities. First, public investments in commercial activities have mostly failed. Second, infrastructure needs are greater than ever. Third, funds from the U.S. have declined and are uncertain after 2001. And fourth, all the FSM's donor partners are offering assistance -- but with conditions for reform and requirements that the FSM dedicate its own development dollars to major projects to demonstrate commitment.

The Big States to Follow?

Both Chuuk and Pohnpei have problems with their runways. Chuuk's problem is so bad they may soon be faced with the cancellation of flights. Chuuk must find about 10 million dollars for airport repairs.

I hope the two largest States follow the Yap model. Congressional delegations, State executive and legislative branches, and Municipal leaders all need to agree on infrastructure priorities. It is also important for Traditional and community leaders and the private sector to support the priority setting process.

There is no doubt Chuuk and Pohnpei have the money to fix their airports. There remains great doubt whether they will stop "pork-barreling" most of their development dollars. To complete the highest priority social and economic infrastructure projects, I estimate 75-80 percent of FSM's development dollars must be devoted to major projects.

From an economic perspective, it is clear that a lot of the FSM's development dollars have been spent on projects with low social and economic rates of return. No wonder economic growth has been slow. There are some shining exceptions of good, small-scale projects-but these could still continue with the 20-25 percent of dollars not devoted to major infrastructure projects.

Clearly, economic rates of return are not driving appropriations. With the exception of those shining examples I mentioned above, politics and the often narrow and short-term interests of individual voters and families appear to be the driving forces. Development dollars are being spent on projects and in locations with the greatest political rates of return. But those returns are in the form of votes -- not in the form of a stronger, more sustainable economy.

Such behavior is not unique to the FSM. The U.S. Congress is famous for its pork barrel spending. But in the U.S., pork barrel spending is only a tiny fraction of total spending. Given the new economic realities facing the FSM there is a need for more sensible priorities.

With Crisis Comes Opportunity for Chuuk.

Pohnpei has at least a couple of years to resolve their airport repair problems. But Chuuk is facing an immediate crisis. If this had occurred in 1996, when the State was stuck in a financial crisis, the outlook would have been hopeless. But this is 1998 and Chuuk's leadership has proven its ability to overcome crisis. The State's citizens have proven they can sacrifice, if they understand the need and can see a better day ahead. The positive results are now being seen. The State is rapidly repaying its debts. The commercial banks are lending again and there are other signs of economic growth. Now comes the next step -- a great opportunity to improve the economic and social infrastructure of the largest State in the FSM.

Good News --¦ Bad News.

The good news is that Chuuk has over 30 million dollars of unspent development dollars safely invested offshore. Add to that the 6 million dollars or more per year the Chuuk Congressional delegation controls and the 6 million dollars per year of development funds the State Legislature controls and it is clear Chuuk could achieve a great deal in the near future.

The bad news is that little of this money has been used for major infrastructure needs. The 30 million dollars referred to are controlled by Municipalities under the terms of the State Constitution. The Congressional delegation divides most of its dollars among dozens of projects. And the State legislature has followed the same path. Chuuk's leaders know the problems. The Governor has invited them to a Leadership Conference next month to agree on the solutions. I wish them all the best.

Building on Recent Reform Successes.

All of the FSM Governments have proven their ability to respond to crisis and to adjust to new realities. The FSM is being congratulated in Manila, Tokyo, Washington, and elsewhere for the tough decisions needed to implement the Public Sector Reform Program. With operating budgets now adjusting to Compact stepdowns and to post-2001 uncertainty, it is time to focus on reforming the way development dollars are spent. The National Government and each State need to agree on priorities, mobilize resources and get on with devoting development dollars to improving infrastructure to support private sector development-the sooner the better!

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