Government of the Federated States of Micronesia

FSM President's efforts with financially troubled states

Palikir, POHNPEI (Office of the Chief of Staff): June 26, 2007 - Less than one month in office, the new Administration began its mission to assist the financially troubled states of Chuuk and Kosrae. Helping or attempting to help the financially troubled states of the Federation has become an urgent part of a President's job even when the states were given primary authority over their own financial affairs. Left unresolved, such problems pose serious implications for the wellbeing of that state's own citizens as well as the financial and economic wellbeing of the Federation.

The respective financial situations of Chuuk and Kosrae are far different in magnitude and urgency. For the current FY2007, Kosrae State has an estimated budgetary shortfall within the range of $ 2 million dollars. Chuuk State on the other hand has estimated government liabilities of $ 41 million. (The FSM President's task force staff believes the records indicate a higher debt amount but the State's financial staff is unable to produce complete records).

Moreover, the states respective government leaderships have different attitude over the President's effort of helping their states.

The Kosraeans, who have a lesser problem, are determined to solve their problem by themselves. They are willing to make the necessary sacrifices. Before the annual audit could confirm the accurate amount though, the Kosrae state leadership met last month and formulated an adjustment plan which will solve their budgetary shortfall in FY2008. Their adjustment program among other things includes the following measures: (1) to lay off 98 people from the state payroll; and (2) increase state sales tax. (The Kosrae Legislature has already passed the sales tax increase legislation).

In the case of Chuuk State, the situation is decidedly worse even as the staff members have not been able to produce the true extent of the state's problem! As of June, 2007, as stated earlier, the state government's liabilities amount to an estimated $ 41 million. An estimated $ 11.6 million of this is in short-term obligations, and the remaining $ 29.8 million in long-term obligations.

Short Term and Medium Term obligations are those that need to be paid off within a very short time, form one to three months (for short term) and over the next two years (for medium term. These include:

Chuuk State Government employees' allotments to the FSM Social Security eatedly failed to which the Chuuk Finance repeatedly failed to turn over to the SSA.

Checks that are issued by the State's Finance without sufficient funds in the bank accounts (and are floating while incurring interest and penalties.

Amounts that the State Finance deducted from employee's salaries for national Income Tax, Health Insurance Premiums but failed to remit to the national Treasury.

And also include, overdraft facility with the Bank of FSM, payables to local vendors, obligations to municipal governments, Recovery Loan to the National Government; obligations to foreign companies performing infrastructure construction for the state.

The Long Term obligations include; medical referral obligations, payment to landowners for land leases and purchase, and other claims and court judgments.

After running fiscal deficits in excess of $2 million in both FY2004 and 2005, it is estimated that the state government will also run in a budgetary deficit of a similar magnitude in FY2006. The fiscal out-turn of the state in FY2007 is not expected to be any better.

Chuuk's escalating financial difficulties has prompted President Mori into a decisive stance to place high priority on assisting Chuuk in reversing its financial problems. Since taking office less than a month ago, he has held two meetings with the Chuuk Leadership in a determined effort to encourage the leadership to agree on a set of reform measures that will address the state's financial crisis. Despite extensive discussion on potential reform measures, the last leadership meeting fell short of reaching such an agreement.

The Joint Task Force is tasked to undertake further work in quantifying the different adjustment measures with the aim of presenting a more clear set of recommended reform program to the Leadership to consider in its upcoming meeting on July 17th.

So far, there is encouragement from the effo0rt of the Kosrae State Leadership. On the part of the Chuuk Leadership, a whole lot remains to be seen. The President is hopeful the Chuuk Leadership will show appreciation of the gravity of their problem and demonstrate similar leadership and commitment to resolving it.