HONOLULU, Hawai‘i (Nov. 5, 2002 - PIR)---The United States and the Federated States of Micronesia initialed a 20-year funding agreement yesterday under the Compact of Free Association, but the amount of U.S. economic assistance was not spelled out in the announcement.

After the 20 years expire, a trust fund will continue to provide funding support, according to a joint-communiqué released in Pohnpei, the capital of the FSM, where officials initialed the agreement.

They also initialed an amended provision extending the bilateral defense and security relationship, which will remain unchanged over the next 20 years.

The communiqué said the FSM "reserved on the adequacy of the level of annual grant assistance and trust fund contributions and on the need for a fully indexed inflation rate."

Earlier news reports said FSM negotiators were hoping to convince the U.S. Congress to increase funding.

The new 20-year agreement approved grants in education, health, infrastructure, public sector, capacity-building, private sector development and the environment, with priorities in education and health, the communiqué said.

A select group of U.S. federal services, including the U.S. Postal Service, the Federal Emergency Management Agency, the USAID's Office of Foreign Disaster Assistance, the Federal Aviation Administration, and the Department of Transportation, will also be continued with certain changes, the communiqué said.

The FSM "reserved" on the discontinuation of certain FEMA programs, the communiqué said.

In addition, both sides initialed a subsidiary agreement that sets out how U.S. grants will be applied and administered. A key feature will be a new management body called the "Joint Economic Management and Financial Accountability Committee" to help ensure more effective use of Compact grant funds and programs and to overcome previous shortcomings in accountability and transparency.

The trust fund will be built up over the 20 years through annual contributions by the United States, the FSM and other donors, both public and private. The fund was designed to develop long-term budgetary self-reliance for the FSM by providing an annual source of revenue after 2023 when U.S. direct financial assistance ends.

Negotiators hope to resolve remaining differences in the next few weeks so their governments can give final approval to the agreement. Officials also discussed cooperation on the "movement of their respective citizens" between the two countries and their treatment.

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