U.S., FEDERATED STATES OF MICRONESIA HOLD ANOTHER COMPACT OF FREE ASSOCIATION

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NEGOTIATING ROUND

By Al Hulsen

HONOLULU, Hawai‘i (January 18, 2001 – PIDP/CPIS)---Delegations from the United States and the Federated States of Micronesia held another round of negotiations in Honolulu last week, continuing efforts to forge a second, 15-year U.S.-FSM Compact of Free Association development aid agreement.

The compact fiscal provisions, which have provided well over a billion dollars in funding to the FSM since 1986, expire this year. The negotiators now are striving to conclude a new financial agreement effective in 2002.

Leading the two delegations at the Doubletree Alana Waikiki Hotel were Allen Stayman, U.S Department of State Special Negotiator, and FSM Chief Negotiator Senator Peter Christian.

The primary purpose of the Honolulu meeting, Stayman said, was to formally present the U.S. response to the FSM’s earlier request for $84,000,000 in renewed annual funding.

Stayman called the meeting "useful," but said, at this point, the U.S. is offering $74,000,000, which "the FSM feels is inadequate."

The U.S. position is that future assistance should focus on meeting health, education and infrastructure needs.

"They also have concerns about the accountability mechanisms we are proposing," Stayman said, which call for grants – requiring accountability reports – rather than simple transfers of funds on a calendar timetable.

The proposed new compact provisions also include the establishment of an FSM trust fund, which would earn interest and provide significant and sustained government revenue.

"We both agreed that this would be an alternative source of funds," Stayman said, but he recommends that other nations in addition to the United States and international funding entities participate in the trust fund development project.

In a formal statement to the negotiators, Stayman said he believed the FSM could manage a reduction in U.S. assistance, currently at $80.2 million annually.

Among other reasons:

* The FSM’s GDP growth rate is projected by the International Monetary Fund to increase by 2.0 percent this fiscal year.

* Debt service payments of some $5 million are due to end soon.

* Nearly $10 million could be saved annually by ending the practice of appropriating funds directly to legislative offices for special projects

Stayman also cautioned the FSM negotiators about the need to conclude negotiations soon.

He said, "We must realize that we are running out of time . . .to obtain congressional approval for any future Compact financial assistance.

"At a minimum, we anticipate that it will take one year for congressional approval after we reach an agreement."

He said he did not believe the change in the U.S. government this month would have any significant impact on the continuing negotiations.

Meantime, regarding compact discussions with the Marshall Islands, which also are under way, Stayman said they await Majuro’s completion of a national development plan.

A U.S.-Marshalls negotiating meeting tentatively is scheduled for the first week of May, he said.

Following the Honolulu meetings, Stayman departed for Palau, another entity in the former Trust Territory of the Pacific Islands, which has a separate aid agreement with the U.S. Negotiator Stayman will be the State Department’s official representative at the inauguration of Palau’s new president, Tommy Remengesau, who succeeds Kuniwo Nakamura.

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