Government of the Federated States of Micronesia

August 28, 2002



Joint Communiqué

Honolulu, Hawai'i, August 28, 2002 - After three years of continuous discussions, representatives of the governments of the United States and the Federated States of Micronesia met at Honolulu, Hawai'i and, on August 28, 2002, substantially completed ad referendum negotiations on an economic package which would provide for continuation of United States economic assistance to the Federated States of Micronesia under the Compact of Free Association, for a period of twenty years, followed by an ongoing source of revenue provided by a trust fund.

The first part of the package would amend and extend the terms of Title Two of the Compact which sets forth the basic financial understandings of the two governments regarding U.S. grants and Federal services. In contrast to the previous fifteen-year arrangement, U.S. grants would now be extended over twenty years, specifically in six sectors, namely, health, education, infrastructure, governance and capacity building, private sector development, and environment. Final understandings remain to be reached on the precise level of U.S. grant funding and annual adjustment for inflation. A select group of U.S. Federal services, including Postal Service, Federal Aviation Administration, and Economic Air Services, among others, also are to be continued with certain changes. Finally, the parties expressed their intent that, unless Congress provides otherwise, U.S. Federal programs available to the island nation on the date the amendments take effect shall continue to the extent that they remain available to state and local governments in the United States.

The second part of the package, on fiscal procedures, elaborates the ways in which U.S. grants would be applied and administered. A key feature would be a new management body called the "Joint Economic Management Committee" (JEMCO). It is the intention of the parties that, through this partnership, the effectiveness of Compact grant funds and programs would be increased and that previous shortcomings in accountability and transparency would be overcome.

The third part of the package provides for the establishment of a trust fund, the corpus of which would be built up over the twenty-year period by annual contributions by the United States, by the Federated States of Micronesia, and by contributions from other donors, both public and private. The purpose of the Fund is to contribute to the economic advancement and long-term budgetary self-reliance of the Federated States of Micronesia by providing an annual source of revenue. Similar trust fund arrangements have proven highly successful in several other Pacific island countries.

In addition, ad referendum agreement was reached on the extension of the Title Three defense and security relationship.

Desiring to complete the negotiating process as soon as possible in order to facilitate early submission of the Compact amendments by both parties to their respective approval processes, U.S. and FSM representatives resolved to concentrate their efforts during the coming weeks in order to overcome remaining issues including important issues relating to immigration.

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