Officials Fear RMI Trust Fund May Not Be Adequate

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Government asks U.S. to approve 2 additional years of funding

By Giff Johnson

MAJURO, Marshall Islands (Marianas Variety, Aug. 20, 2012) – Marshall Islands officials are expressing concern that a national trust fund will not be adequately capitalized by the time United States grant funding ends in 2023 and are asking the American government for an extension of grant funding.

The trust fund established six years ago for the Marshall Islands is supposed to provide a base to continue funding government operations when U.S. grant funding expires after 2023. But in two of the first five years of its establishment, the trust fund lost money and from FY 2007 through FY 2011, it earned at a rate of only 2.4 percent.

Marshall Islands Foreign Minister Phillip Muller said his government is requesting the U.S. to approve two additional years of Compact funding beyond 2023 based on the fact that the trust fund money was not fully invested for more than two years after the Compact of Free Association was approved. And the Marshalls is lobbying the U.S. to provide $20 million in compensation funding for tax and trade incentives taken out of the first Compact, which would be invested to boost the trust fund.

A U.S. interagency committee that reviewed the tax and trade issue concluded that the Marshall Islands "reasonably demonstrated net adverse impacts based on the loss of benefits in making their request for $20 million in future compensation," reported the most recent annual report on the trust fund.

"We won’t let this issue go," Muller said. "This is one issue where the U.S. government agrees with us. They owe us some compensation."

But in the absence of more money, the trust fund could be too low to generate enough revenue to replace Compact grant funding, which could plunge the Marshall Islands into economic chaos in 2024 — unless other donors start injecting large aid funding or the local economy picks up a major portion of the donor aid that now supports 70 percent of the government’s annual budget.

The title of a U.S. Government Accountability Office issued in 2007 states the problem succinctly: "Trust Funds for Micronesia and the Marshall Islands may not provide sustainable income."

"There is increasing probability that in some years the trust funds will not reach the maximum disbursement level allowed — an amount equal to the inflation-adjusted Compact grants in 2023 — or be unable to disburse any income," the GAO said.

The trust fund, said Muller, "was a major agenda item" in the discussions with U.S. Assistant Secretary of State Kurt Campbell during Campbell’s island hopping Pacific visit earlier this month.

"There is no doubt we need to find additional donors," Muller said. "We’ve talked with South Korea, the European Union and Australia." But, he said, donors are reluctant to put money into a trust fund that is controlled by the U.S. Muller said he likes how the Federated States of Micronesia has set up a separate trust fund — in addition to its U.S.-supported trust fund — for which it is seeking donor contributions from other countries. "I’ve encouraged the president and cabinet to consider the same," he said. "We would be able to attract more donors."

Through FY 2011, the trust fund had received $75.18 million from the United States, $11.20 million from Taiwan, and $30.12 million from the Marshall Islands for a total contribution of $116.5 million. At the end of FY 2011, the trust fund totaled $125,177,120 — less than $10 million above the investments from these three governments. After a losing year in 2011, the fund has been up in 2012, with the fund level at $160 million as of the end of May.

While the fund has earned at only a 2.4 percent pace since its start, projections show a wide variation of what the fund level could be in 2023, depending on the health of U.S. and global stock markets.

The GAO, in 2007, said the Marshalls trust fund could range from $439 million to $862 million in 2023.

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