MELBOURNE, Australia (Radio Australia): June 25, 2003 - The United States General Accounting office says the Federated States of Micronesia and the Republic of the Marshall Islands face substantial aid cuts, because a multi-billion aid package won't keep pace with inflation during the next 20 years.

A proposed US$6.6 billion combined aid package has been negotiated with the two Pacific countries as part of their revised Compact of Free Association.

But Susan S. Westin, the GAO's managing director of international affairs and trade, says the package will substantially reduce per capita aid.

She told the U.S. Congress' Subcommittee on Asia and the Pacific that trust funds would not generate enough income to compensate for the loss of direct federal funding when the Compact expires in 2023.

Albert V. Short, who negotiated the compact for the U.S. State Department, has defended the proposal.

He said it includes adequate provisions to ensure federal aid is accounted for and used effectively.