HONOLULU, Hawai'i (Pacific Island Report): May 14, 2003 - Negotiators for the United States and the Federated States of Micronesia have signed a $1.8 billion compact aimed at economic self-sufficiency in the fledgling island nation.

The amended document, initialed yesterday in Pohnpei after four years of negotiations, mirrors a recently signed compact between the U.S. and the Marshall Islands. It would replace provisions of the 1986 Compact of Free Association that expired in 2001 and provide a guaranteed revenue stream to the FSM for the next 20 years.

Both countries must now approve the proposal, with the U.S. Congress under a tight deadline to act before October to insure continued funding to the FSM.

The newly announced agreement would provide $92 million a year to the FSM for 20 years and allow continued access to U.S. services and programs, including the U.S. Postal Service, the Federal Aviation Administration, and others. FSM citizens would also continue to have free access to the U.S. without visas.

The United States, in turn, would keep its close military relationship with the federated states, which have been alternately threatened and courted by numerous other foreign nations over the years.

But the new amendments, which aim to cut federal grants to the FSM in fiscal 2024 after decades of U.S. support, have left some serious apprehensions.

FSM Ambassador Jesse Marehalau, who called the agreement a "milestone for Micronesia," noted concerns about the level of funding, the discontinuation of federal disaster assistance, and the possible loss of federal programs.

"Our economic analyses unequivocally show that the reduced levels of assistance in the document as signed severely jeopardize our chances for continued economic growth and development," Marehalau said in a prepared statement.

He added that some members of U.S. Congress have recently tried to eliminate eligibility for some current programs in the FSM.

"It must be recognized that the lowered levels of grant assistance extended here by the U.S. do not in any way replace existing federal programs," he said.

U.S. Ambassador Larry Dinger acknowledged areas of disagreement but said the compact would provide the FSM with the highest per capita level of U.S. assistance of any nation - excluding the Marshall Islands.

He called the document a "ringing endorsement of a remarkable relationship" and noted great strides taken since the first compact was formally approved 17 years ago.

"We can look with considerable pride at many successes, including the development in the FSM of a thriving democracy," Dinger said. "Just three days ago, we witnessed a transfer of power here in Palikir after well-run general elections last March which resulted in a sizable turnover in the Congress. That such a significant chain of events took place in such a peaceful and orderly manner speaks volumes."

According to the negotiators, the amended compact is meant to put the federated states on the road to economic self-sufficiency within the next 20 years. Along with annual grants, the compact would establish a trust fund invested and overseen by a joint board of U.S. and FSM trustees. The fund would target a yearly revenue stream to replace federal grants after 2024.

The compact also identifies grant priorities, including education, health care, infrastructure development, economic growth, and environmental protection. And it creates an agency to oversee the management of grants money.