Government of the Federated States of Micronesia

MOU outlines the Chuuk financial reform plan

Palikir, POHNPEI(Office of the Chief of Staff): July 27, 2007 - FSM President Mori and top leaders of Chuuk State have recently executed a Memorandum of Understanding (MOU) that sets forth reform measures or ways of helping Chuuk State with its financial crisis.

The MOU was signed at the Cliff Rainbow Hotel at the end of two days of final negotiations and before the Chuuk State leaders were to return home after participating in the National Inauguration ceremonies in mid July, 2007.

Signing on behalf of Chuuk State were: Governor Wesly Simina, Chuuk House of Representatives Speaker, Singkoro Harper and Chuuk State Senate Floor Leader, Alanso Cholymay and accompanied by their staff: the Chuuk State Attorney General; the Director of Finance and Administration and the Legislative Counsel. Also signing as part of the Chuuk State leadership was Chairman of Chuuk Congressional Delegation, Mr Roosevelt Kansou.

The MOU acknowledges first of all that Chuuk State's overall debt portfolio is around 46 millions. Four millions ($4 millions) of the $46 millions are considered short term loans that need to be paid off within the next six months to one year period; $7 millions are considered medium term loans that need to be paid off within one year to three years. Among the reform measures agreed upon in the MOU were:

A. For Chuuk State to:

  1. Sell off its stock holdings or investment in the Banks of Guam and of the FSM and deposit the proceeds in a stabilization fund. The fund will be jointly administered by both Chuuk State and the FSM and will be for the purpose of paying off Chuuk State's debts. The stock divestment is agreed to occur within one year after the signing of the MOU. Proceeds from those sales are estimated to be $1.8 millions

  2. Sell the Chuuk State Medical Referral House in Honolulu and use the proceeds as part of the Stabilization Fund. The sale is agreed to occur within two years of the date of the MOU (July 19, 2007) and is speculated to net about $1.5 millions. (However, there are reportedly judgment liens recorded in Hawaii against the property by individuals who have judgment claims against Chuuk State).

  3. Adopt austerity measures to control General Fund expenditures for the remainder of the 2007 Fiscal Year. (Chuuk State FY07 expenditures exceed gross revenues by $2 millions). The austerity measures include a moratorium on hiring, salary increases and other spending as travel. The State shall also aim to reduce its FY07 $2 million Budget Deficit by $500,000.

  4. Chuuk State also agreed that before end of the FY07 on October 1, 2007, it shall work to balance its proposed FY08 Budget and to include a provision to reduce the budget deficit by $1 million.

  5. Chuuk State also promised to eliminate 400 positions from its operations budget. The elimination will involve two phases: 200 positions by March 31, 2008, and the other 200 by March 31, 2009. An approximate $2 millions savings is expected from the elimination of positions.

  6. Chuuk State will work to restructure its state government, including restructuring the Chuuk Legislature into a unicameral legislature. The State agreed to make sure voting on the Legislature restructuring constitutional amendment is on the March 2009 General Election ballot. The restructuring measures are expected to yield a savings of $1 million.

  7. No later than October 1, 2007, Chuuk State will develop a public awareness program to educate the Chuukese people about the imminent need for reform.

In addition, there were other measures that both Chuuk State and the FSM National Government committed themselves to doing jointly. They include joint pursuit of outside financial and technical assistance to help the state's problems, strengthening of tax administration to improve revenue collection, and the immediate allocation of Chuuk's 20% revenue sharing balance from fiscal years, 2002 and 2003.

In submitting an original set of the MOU to FSM Speaker Isac Figir, President Mori's cover letter stated:

"[...] I want to impress upon you and the Congress that in due time, I will be coming to the Congress for support as it is apparent that the gravity of Chuuk's problems do pose potentially disrupting effects both on the National Government's operational capability and on the Nation's long-term financial and economic wellbeing. As you go through the MOU and its supporting tables and matrix, you will find that a significant part of Chuuk State's debt portfolio is urgently due and owing to different agencies of the National Government, including the FSM Social Security Administration and the FSM Department of Finance and Administration Customs and Tax Administration. I am sorry to say that Chuuk's financial problem is indeed a FSM problem, requiring our joint effort and resolution [...]"

The Chuuk State leadership has reportedly begun implementation steps for some of their obligations under the MOU.

For further information on this release, please contact:

FSM Office of the President
Public Information: Press, Radio, Video
P.O Box 34
Palikir Station, Pohnpei, FM 96941
Tel.: (691) 320-2548/2092
Fax.: (691) 320-4356