U.S.-MICRONESIA COMPACTS OFF TO A POOR START

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HONOLULU (Pacific Islands Report, July 14) – A new report by the U.S. Government Accountability Office raises serious concerns in the progress of the $3.5 billion compacts that went into effect between the United States and the Republic of the Marshall Islands and the Federated States of Micronesia last summer.

The GAO report, released this week, says critical aspects of the funding, including accountability, planning, and oversight of the 20-year amended Compact of Free Association, are not being carried out. And in the FSM state of Chuuk, compact funds earmarked for education have been suspended because of possible misuse of funds.

"Strategic planning issues impacting the long-term, effective use of funds have not been addressed," the 76-page report says. "The allocations of the grants to the sectors have not been linked to the countries’ development goals; the FSM (Federated States of Micronesia) and RMI (Republic of the Marshall Islands) have not planned for annual required decreases in grant funding; and trust funds have not been invested to maximize interest earnings."

Moreover, the report says, the U.S. government has been slow to comply with terms of the pact, having failed along with the two Pacific countries in submitting an annual compact spending and development report for fiscal 2004.

The GAO, an agency that serves as the investigative arm of the U.S. Congress, undertook its study after a previous report by the agency found little accountability for funds provided under the previous compact, which supported the economies of the two former U.S. trust territories between 1987 and 2003.

Under the current compact – which gives about $76 million a year to the FSM and $35 million to the Marshalls each year until 2023 – strict financial controls are imposed, including required annual audits and spending plans. Also, as a means of cutting the monetary umbilical cord between the U.S. and its former territories, a schedule of reduced annual grant payments is predicated on the establishment of trust funds that would generate future income for the Micronesian countries.

But, a year into the new compact, little has been done by the Marshalls or the FSM governments to implement the new plan, the GAO has found.

"Both the FSM and the RMI have provided the U.S. government with all required quarterly performance and financial reports for fiscal years 2004 and 2005," the report says. "However, OIA (Office of Insular Affairs) officials viewed the FSM’s early performance reports as inadequate and FSM and RMI officials reported that they are still learning how to prepare such reports."

The GAO report recommends that the U.S. work with the Marshalls and the FSM to improve oversight and planning.

July 14, 2005

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