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Two-year continuance would offset trust fund shortfall

By Giff Johnson MAJURO, Marshall Islands (Marianas Variety, Dec. 17, 2010) - The Marshall Islands is asking the United States government to extend a long-term funding agreement for an additional two years until 2025 because it says a two-year delay in investing a Compact of Free Association (COFA) supported national trust fund has undermined the health of the investments.

[PIR editor’s note: Under its Compact of Free Association with the United States, the Marshall Islands in 2010 were to receive $57.7 million in grants and aid.]

This is among a series of Marshall Islands government requests to the U.S. government contained in the Marshall Islands response to an Obama administration "Report to the U.S. Congress on the First Five-Year Review of the Compact with the Marshall Islands," which was released on wednesday in Majuro.

Addressing the Trust Fund and extension of U.S. funding to 2025 are part of six areas of concern that the Marshall Islands says are vital not only to the success of the Compact but to the economic growth prospects and social stability required to ensure the Marshall Islands remains a viable nation with improving living standards.

Among key points in the Marshall Islands response:

Trust fund problems need to be addressed now, not later, said the Marshall Islands paper prepared by the Ministry of Foreign Affairs. Based on fund performance to date, the fund will not contribute to economic advancement and long-term budgetary self-reliance, the report said; citing U.S. Government Accountability Office, U.S. Department of Agriculture and International Monetary Fund reports that predict the trust fund will fall far short of the level needed to provide a smooth transition when U.S. grants funding ends after 2023. The Compact of Free Association requires that the fund be invested for 20 years before the Marshall Islands can begin to use the money. But funding was not fully invested until two years after the Compact went into effect in 2004.

The Marshall Islands said the trust fund agreement also requires both countries to seek additional contributors to the trust fund. But while the Marshall Islands gained contributions from Taiwan, "this important provision has not been implemented by the U.S. government (in) the first six years of the Trust Fund’s existence."

Specifically, the Marshall Islands is seeking 100 percent inflation increase adjustments for the U.S. annual trust fund contribution, extension of U.S. grants to 2025, additional investments into the trust fund, and technical amendments to the trust fund agreement language.

The Marshall Islands wants the U.S. to provide full inflation adjustment to U.S. grants to replace the two-thirds increase in the Compact and reduce the reduction in annual U.S. Compact funding from US$500,000 to US$250,000.

The terms of the Compact provide that grant funding is reduced by US$500,000 a year and the contribution to the trust fund, which started at US$7 million in 2004, increases by US$500,000 annually. With inflation reducing the value of U.S. funding, this will likely decrease development, roll back improvements made in the priority areas of health and education, and produce aggressively deteriorating living standards leading to increased migration to the United States, the report said. The Marshall Islands security and defense commitments do not erode under the Compact. The Marshall Islands hopes that the U.S. economic and financial commitments under the Compact do not erode as they are now due to the real loss of value of the Compact funds.

The U.S. needs to make the Supplemental Education Grant (SEG) a permanent appropriation to remove the uncertainty of year-to-year fluctuations in funding. An annual SEG grant of US$6.1 million was agreed to as cash out for a variety of previously available U.S. federal grants provided to the Marshall Islands. But the Marshall Islands said from 2004-2008, it received US$10.5 million less than the agreed level of funding because of the U.S. congressional appropriation process.

The Marshall Islands wants the U.S. government to restore its eligibility for the U.S. national school lunch program. The report said that the Ministry of Education "noticed high truancy rates among the elementary student population during the first years of the amended Compact that it said were directly due to the fact that there was no school lunch program in place." A pilot lunch program was started at Marshall Islands High School in 2006. This was expanded to other high schools in 2007, but in 2009 school lunch funding was slashed. There is strong anecdotal evidence that suggests that school truancy rose again, the report said. The U.S. supported US$300,000 in funding for last year and this year, but said this is the last year U.S. funding can be used for a school lunch program because the U.S. wants to focus its funding on core education programs. This fact threatens the Marshall Islands’ ability to achieve the mutually agreed objective of providing better outcomes in its education system in the future, the report said. If children are not provided essential nourishment and nutrition while attending school, the Marshall Islands desire to improve the education of its people will be jeopardized. Resorting Marshall Islands eligibility for the U.S. government school lunch program will resolve this situation.

The U.S. is currently working on finalizing the Five-Year Report, said Deputy Chief of Mission at the U.S. Embassy Eric Watnik. There is no set timeframe on when it will be submitted to Congress.

The U.S. administration is required to submit to the U.S. Congress a five year evaluation of the Compact on the five, 10 and 15 year anniversaries of the Compact. It is now a year overdue, as the Compact started in 2004.

Watnik confirmed that the Marshall Islands government¹s response will be included in the U.S. report to the Congress.

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