Uncle Sam Flexes His Muscles

“If painful decisions are not made now, the Compact will not survive.” —David Cohen Photo: Giff Johnson

Washington and the Federated States of Micronesia (FSM) got off to a rough start in August at the first formal meeting of the bilateral group that oversees U.S. federal spending in the FSM. The meetings, held in Hawaii as part of the Joint Economic Management Committee or JEMCO, left the FSM team bloodied as the American side made clear in blunt fashion its unwillingness to show any flexibility in this transition year to a new Compact of Free Association accountability regime.

It was a different story for Marshallese negotiators who attended a separate bilateral meeting in Honolulu. The Marshall Islands used a slight difference in the fine print of its compact (compared to the FSM's) to its advantage, resulting in a very different tone to its talks the day after the U.S.-FSM meeting.

As with the opening of the U.S.-FSM talks, the U.S. delivered a series of resolutions and demands that initially left Marshalls leaders shaking their heads. But by citing provisions of the U.S.-Marshall Islands Compact that requires a consensus vote on all of the sector budgets, the Marshall Islands was able to change the adversarial start of its talks, officially known as the Joint Economic Management and Financial Accountability Committee (JEMFAC). All votes in the U.S.-Marshalls meeting were unanimous, with little of the friction evident in the U.S.-FSM meeting.

The amended compacts for the FSM and the Marshall Islands aim to reduce dependence on the U.S. so that in 2023, when the new agreements end, trust funds will be adequate to replace most or all of current U.S. funding. While there's basic agreement on this, how it happens-or more precisely, how money gets spent-continues to be a source of friction between the U.S. and its two mid-Pacific allies, particularly the FSM. While the first compacts with these two countries provided multi-million dollar block grants that island legislators could spend virtually as they wished, the new deal is tightly controlled by the U.S., which maintains a three-to-two majority on JEMCO and JEMFAC.

David Cohen, the U.S. Deputy Assistant Secretary for the Interior, and the chairman of JEMCO and JEMFAC, speaking with Pacific Magazine shortly after the meetings, said: "Our primary objective was to emphasize the importance of getting good data in a timely fashion. There is a need for both sides to communicate better."

The decisions made at these first committee meetings will have lasting influence over the remainder of the compact period, so there was a need for clear directives. "It was extremely important to establish good precedent over certain interpretations of issues on both sides, and to have a common understanding of what the rules are," Cohen adds. "It is important for us familiar with the driving concepts behind the changes we've made to the compact to make sure issues are properly addressed as we begin implementation."

There were several controversial 3-2 votes that will have lasting implications for the FSM. JEMCO rejected a FSM proposal to use compact funds for the purchase or lease of land in fiscal year 2005. Moreover, JEMCO also prohibited the use of compact money for pre-existing land leases.

"We all know that land is a very scarce resource in the FSM, and in the states much of government operations takes place on private land, either leased or donated," FSM JEMCO member and Secretary of Financial Affairs Nick Andon says. "It will be very difficult to secure land to implement projects under the new compact given the latest JEMCO resolutions. In Chuuk, the airport, hospitals, school buildings and dispensaries are all located on leased land, and landowners will not allow leases to continue if there isn't payment."

Capacity-building money, which was used in the first compact to fund government departments such as finance, justice, state courts and public auditors, is also highly restricted under the new compact. "Right now we're using the capacity-building money for government operations, all of which will need to be transitioned out to local revenue that doesn't currently exist," Andon says. "We'll need to establish a tax system and the government is going to have to lay off employees, a transition that is going to take time."

Cohen was sympathetic to the restrictions JEMCO is placing on the FSM. "We realize this is a difficult transitional period, and we take no pleasure in the fact that FSM leaders have painful decisions to make," he says. "But I think they're doing an excellent job under very difficult circumstances. If painful decisions are not made now, the compact will not survive."