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HONOLULU (Pacific Islands Report, May 14) –Negotiators for the
United States and the Federated States of Micronesia have signed a $1.8 billion
compact aimed at economic self-sufficiency in the fledgling island nation.

The amended document, initialed yesterday in Pohnpei after four
years of negotiations, mirrors a recently signed compact between the U.S. and
the Marshall Islands. It would replace provisions of the 1986 Compact of Free
Association that expired in 2001 and provide a guaranteed revenue stream to the
FSM for the next 20 years.

Both countries must now approve the proposal, with the U.S.
Congress under a tight deadline to act before October to insure continued
funding to the FSM.

The newly announced agreement would provide $92 million a year
to the FSM for 20 years and allow continued access to U.S. services and
programs, including the U.S. Postal Service, the Federal Aviation
Administration, and others. FSM citizens would also continue to have free access
to the U.S. without visas.

The United States, in turn, would keep its close military
relationship with the Federated States, which have been alternately threatened
and courted by numerous other foreign nations over the years.

But the new amendments, which aim to cut federal grants to the
FSM in fiscal 2024 after decades of U.S. support, have left some serious

FSM Ambassador Jesse Marehalau, who called the agreement a
"milestone for Micronesia," noted concerns about the level of funding,
the discontinuation of federal disaster assistance, and the possible loss of
federal programs.

"Our economic analyses unequivocally show that the reduced
levels of assistance in the document as signed severely jeopardize our chances
for continued economic growth and development," Marehalau said in a
prepared statement.

He added that some members of U.S. Congress have recently tried
to eliminate eligibility for some current programs in the FSM.

"It must be recognized that the lowered levels of grant
assistance extended here by the U.S. do not in any way replace existing federal
programs," he said.

U.S. Ambassador Larry Dinger acknowledged areas of disagreement
but said the compact would provide the FSM with the highest per capita level of
U.S. assistance of any nation – excluding the Marshall Islands.

He called the document a "ringing endorsement of a
remarkable relationship" and noted great strides taken since the first
compact was formally approved 17 years ago.

"We can look with considerable pride at many successes,
including the development in the FSM of a thriving democracy," Dinger said.
"Just three days ago, we witnessed a transfer of power here in Palikir
after well-run general elections last March which resulted in a sizable turnover
in the Congress. That such a significant chain of events took place in such a
peaceful and orderly manner speaks volumes."

According to the negotiators, the amended compact is meant to
put the Federated States on the road to economic self-sufficiency within the
next 20 years. Along with annual grants, the compact would establish a trust
fund invested and overseen by a joint board of U.S. and FSM trustees. The fund
would target a yearly revenue stream to replace federal grants after 2024.

The compact also identifies grant priorities, including
education, health care, infrastructure development, economic growth, and
environmental protection. And it creates an agency to oversee the management of
grants money.

May 14, 2003

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