Government of the Federated States of Micronesia

Statement by

H.E. Mr. Leo A. Falcam
President of the
Federated States of Micronesia

at the International Conference on Financing for Development

Monterrey, Mexico, 21 March 2002

Check Against Delivery

Mr. President Excellencies distinguished delegates ladies and gentlemen.

At the outset, I would like to express my appreciation to the host country for the excellent courtesies and arrangements extended to me and my delegation since our arrival in this beautiful city.

I am honored to have the opportunity to appear before you today to address an issue of utmost importance to my nation - financing for development. I commend the United Nations for arranging this historic conference, and thank you, Mr. President; for your efforts to bring this about.

Special Situation of the FSM and other Small Island Developing Countries

Mr. President; before I proceed, please allow me to offer a bit of background on my nation for those who may be unfamiliar. The Federated States of Micronesia (FSM) is a small island developing country comprised of over 600 islands in the western pacific. Our borders span an area roughly as large as the continental United States, yet our land mass is comparable with that of the smallest U.S. state. Scattered throughout this vast expanse is our total population of about 107,000.

Our people have inhabited their islands for hundreds, perhaps thousands of years. We have traditionally made our living from the land, and most importantly, the sea. However, in the past hundred years, we have been thrust upon the world stage and have undergone an often painful transition to a modern economy. These growing pains continue today, and are even greater in the course of our quest to become more closely integrated with the global economy.

This transition has been difficult for many. We have been aided in our development by our unique ties to our former United Nations trust administrator, the United States. This arrangement is the result of the Compact of Free Association, a landmark agreement adopted by our two nations in 1986. Through the Compact, the FSM has enjoyed a defense umbrella provided by the United States. The compact also has provided a guaranteed funding stream to assist with my country's development.

U. S. assistance, through the Compact, has allowed my nation to make great strides in its development efforts with a goal of enhancing the standard of living of our citizens and working toward economic self-reliance for the future.

Like many small island states, the FSM has few natural resources. Coupled with our small population base, distance from markets and other constraints, this limits the range of economic options at our disposal. Development, if it is to succeed, must therefore overcome seemingly insurmountable odds.

Mr. President, I would remind those present of the findings of the Global Conference on Sustainable Development of Small Islands Developing States, held in Barbados in 1994, and reiterated in a Special Session of the General Assembly in 1999.

The Barbados Plan of Action, adopted by the first meeting, and reaffirmed by the second, highlights the special circumstances of small island developing states such as the FSM, and the challenges that these states face in the global economy. A narrow resource base, dependence on international trade and vulnerability to natural and human-induced disasters, transportation and communications challenges - I need not repeat them all here, but suffice it to say that my country faces most, if not all, of the phenomena on that list.

These conditions also create many obstacles for us in the global economy. For example, we are handicapped as to lending, based on the assumption that our size and circumstances constrain our absorptive capacity. The FSM's copra industry, historically our only significant land-based source of export income, has nearly collapsed due to our inability to compete effectively with larger producers.

With this background in mind, please allow me to offer my brief remarks on some of the key issue areas before us today:

Development Framework in Developing Countries

Mr. President the experience of the Federated States of Micronesia has shown that unless there is political stability, transparency and accountability, economic development initiatives are bound to fail. We are proud of our system, and can point to its role in facilitating the significant progress made in development during the last fifteen years.

Too often, I'm afraid, we focus on failures and overlook the significant progress that can be made when the proper climate for development exists. As we all know, there is not a nation on earth that has not faced internal difficulties on the path toward sustainable development. Of course, every effort should be made to eliminate these problems, but we must not let their existence deter those from furthering progress where initiatives find fertile ground.

Mr. President, it is true that domestic sources of development financing are essential to further the goals of a nation. However, in most developing countries, domestic sources alone are not adequate to carry the nation forward. This is particularly true of small islands where resource bases are small, and where elements such as public administration and infrastructure costs consume a large portion of these meager domestic resources.

International Trade

We are deeply committed to integration of the FSM in the global economy. However, we must recognize that such integration does run the risk of carrying with it unintended social impacts that are particularly troubling for a traditionally isolated, unique culture such as that of Micronesia. Every day my government seeks to walk this fine line between reaping the benefits of integration with the global economy while preserving our local culture and way of life.

As the Barbados Plan of Action stated, "small island developing states are limited in size, have vulnerable economies and are dependent both upon narrow resource bases and on international trade, without the means of influencing the terms of that trade." The next round must give due attention to the comparative disadvantages we in small island developing economies face in the global marketplace.

The results of the Barbados Conference, and its follow-up with the Special Session of the United Nation General Assembly (UNGA), will be on the table for the first time for future rounds of trade negotiations, and should be accorded the weight they deserve.

We hope that this conference will positively influence the next round of global trade negotiations. The world economy is fundamentally different today than it was when the Uruguay round commenced, and new issues have risen to the fore. The work we do here in Monterrey should be instrumental in shaping the elements to be considered by this next round.

Official Development Assistance (ODA)

Mr. President; I lend my voice to that of the distinguished Chairman of the G-77 and China in the course of his statement earlier, and would concur with the wise words of the Chairman of the Preparatory Committee when he stated, "we simply cannot allow the decline of official development assistance (ODA) to continue." Indeed, this decline is one of the most alarming trends in international relations in the post-cold war era.

It must be stopped. At a time when many around the world are enjoying unprecedented prosperity, for those who are prospering the most to turn their attention away from the world's poorest nations and peoples, strikes me as shortsighted and dangerous. The gap between the "haves" and "have-nots," not just in term of financial resources, but also technical expertise, continues to grow at an alarming rate.

Years ago, our predecessors established the modest target of 0.7% of gross national product (GNP) for official development assistance (ODA). With a few notable and welcome exceptions, most developed nations remain far short of this goal, and many are slipping even further away from it. We commend the European Union for the constructive steps they are taking to reach this goal and reiterate our appreciation to those nations which have already succeeded in meeting this goal.

A similarly alarming trend is the view that foreign direct investment can serve as a substitute for ODA. My country's experience shows the invalidity of this premise. In recent years, the Federated States of Micronesia has been engaged in a process of implementing a sweeping economic reform program, developed with the assistance of multilateral lending institutions and development agencies.

Still, due to the factors I have mentioned previously, we have not been successful in attracting foreign direct investment. In light of this we will have to continue seeking ODA to address the unique circumstances faced by small island economies.

Finally, it is important to recognize that funding provided for implementation of international environmental conventions should be considered separately from ODA.

Debt Relief

A central component of long-term assistance to developing countries must be relief from the pressing burden of debt many nations face. I'm pleased to say that, largely as a result of our unique arrangement with the United States, the Federated States of Micronesia does not suffer from the crippling debt burden that many of our neighbors face. Still, this does not lessen our sensitivity to the issue, and we will work constructively here and in other forums to ensure a fair and equitable resolution of the developing country debt problem.

Both donors and recipients must change their approach to development assistance loans. Developing countries must ensure that borrowing is done in the context of a sustainable development plan, and donors should strive to ensure that development assistance does not lead to an untenable debt burden. In this regard, assistance should increasingly take the form of direct grants especially in the case of least developed countries (LDCs), small island developing states, and other vulnerable economies.

Reform of Current Economic Institutions

We lend our voice to those calling for a meaningful reform of existing international finance and development institutions to ensure that recipient countries have a greater stake in the development and implementation of measures undertaken by these institutions. This is very much a common sense issue. At the micro level, it is widely held that all stakeholders must have a voice.

Therefore, it is inconceivable how this could not be in terms of international policies. Coming from a small island developing state, too often we find that we are not adequately represented in global economic discussions that will impact our daily lives, and that we are often not considered for loans and projects due to our small economy. This clearly should not continue.

Speaking of reforming economic institutions, I would like to highlight four elements that are equally important which I believe should be used as a basis to affect decisions and/or plans when it comes to implementation of this very important Monterrey conference:

  • First; ensure macroeconomic stability. Financing for development should build the necessary conditions in developing countries including small island economies to become less vulnerable to shocks.

  • Second, improve economic growth. Financing for development should ensure economic growth reaches the poor so they become increasingly productive participants in society.

  • Third, improve the efficiency of basic social services. Financing for development should ensure that mobilized resources are sufficient and targeted to advance education and health which play such a vital role in alleviating poverty and accelerating broad-based growth.

  • Finally, economic growth should be environmentally sustainable. As nations achieve higher growth and greater reliance on their own resources, the fragile environment and invaluable biodiversity will surely face greater threats. Thus, a sensible, gradual path toward sustainable development will promote better planning, resource utilization, and environmentally sustainable growth patterns. Financing for development should integrate this important element as a necessary condition.

In our view, the most important task before us in this regard is to change the mindset of these organizations and agencies. Different circumstances require different approaches, as we are all too well aware in Micronesia Obviously, models originally designed for projects in the mountains of South America or the deserts of Central Asia will not be most effective when applied to the FSM.

Still, we too often see these approaches in the current international development climate. For programs to be effective, they must be designed with input from the recipient, and institutionally these agencies must take a flexible, responsive approach rather than one that is simply bureaucratic.

Follow-Up to the Conference

It is notable that the year 2002 features two high-level, high -profile summits on issues of development. We must ensure that the results of this conference are adequately incorporated in the preparation for the World Summit on Sustainable Development and that the key themes we address here be further examined and developed in Johannesburg.

Beyond that, we must ensure that a permanent mechanism exists for continued work on the issues before us here today. Clearly, the lofty words and noble ambitions we bring with us to Monterrey are not going to solve these problems overnight. Much work remains, and in that work we should be guided by our findings here as well as those expressed in the historic "Millennium Declaration" and other international initiatives.

For my country's part; we will continue to strengthen our domestic institutions and economic development processes. As I have stated many times before, we face a looming threat from accelerated climate change, which carries with it the threat of massive changes in our nation's productive capacity. In the course of our future planning, we will endeavor to consider and plan for potential shocks due to our environmental and economic vulnerability. Guiding our efforts will be the underlying goal of achieving a level of sustainable economic growth and reducing poverty.


Let us work together for an effective solution to the wide range of pressing issues before us, and strive to achieve our goal of making the twenty-first century the "century of development for all, "as expressed by Secretary General Annan. In so doing, let us not neglect the special circumstances of the smallest and most vulnerable members of the world economic family-entities such as the Federated States of Micronesia and other small island nations.

Thank you Mr. President.