Chuuk and Kosrae to receive funding to continue Financial Recovery

Government of the Federated States of Micronesia

Chuuk and Kosrae to receive funding to continue Financial Recovery

PALIKIR, Pohnpei (FSM Information Service): March 13, 2008 - Continued commitment by State and National leaders to government structural reform and financial sustainability in Chuuk and Kosrae States has attracted significant funding support under the Compact.

In its first major public act for 2008, the FSM-US Joint Economic Management Committee (JEMCO) has allocated $2.3 million out of FY08 Public Sector Capacity Building Compact grants to support the efforts of Chuuk leadership to reign in its annual government budget. A further $750,000 was allocated to Kosrae State to complete its successful structural reform program.

JEMCO is the body charged with responsibility to supervise the use of funds under the terms of the Amended Compact between the FSM and the US. The Joint Committee is comprised of three US and two FSM voting representatives.

FSM President Manny Mori said he was pleased to learn of JEMCO's recognition of the serious commitment that the leadership of the two states have shown to undertake government structural reform for long-term financial sustainability.

"I commend and thank the state leaders' in Chuuk and Kosrae for their continuing efforts toward financial viability" President Mori said.

"I also want to encourage the leaders in Pohnpei and Yap states and at the FSM national government level, to continue to display financial prudence and good management as the cornerstone to sound economic growth and financial sustainability," the President said.

The Director of the FSM Office of Statistics, Budget and Economic Management, Overseas Development Assistance and Compact Management (SBOC), Mr Fabian Nimea, who is one of the two FSM representatives on JEMCO, said that JEMCO's funding support indicates that the reform program being undertaken by Chuuk and Kosrae States is considered by both the United States and FSM governments to be serious and viable.

The $750,000 grant allocation to Kosrae State is in addition to $1.5 million that was made available to the State by the FSM National Government in 2007, and $500,000 provided from a grant for financial reform given to the FSM by the Government of the People's Republic of China. This brings to $2.75 million the total funds made available to Kosrae State Government for its reform efforts. Kosrae State Government has been able to implement an orderly Reduction in Force of nearly 100 government positions and make other necessary reforms since its reform program commenced in August, 2007.

Director Nimea explained that JEMCO had also agreed to support a Reduction in Force (RIF) that is part of the comprehensive financial recovery program for Chuuk state. The $2.3 million approved by JEMCO will be used to fund one-time payouts to the 400-plus state government employees whose positions have been cut from the general fund payroll. The severance payments will be equivalent to one-year of salary.

Under the terms of the JEMCO Public Sector Capacity Building grant allocation, Chuuk State and SBOC will be required to provide OIA with a line-item listing of the roughly 400 positions and vacancies that will be eliminated and an accounting of the resulting budgetary savings to be realized. An additional $200,000 in funding support may be made available once Chuuk identifies further areas for adjustment, for a possible total assistance package of $2.5 million from this Compact grant source. The overall savings to Chuuk State as a result of the Reduction in Force, including all other payroll benefits and costs, is expected to be nearly $3.4 million.

In addition, Chuuk State Government will receive $3.5 million from the financial grant for financial reform made that has been provided to FSM by China. This brings to $5.8 million the total funds that Chuuk State will receive from non-state sources for its Financial Recovery Program in 2008.

Director Nimea said the overall Financial Recovery Program adopted by Chuuk State, with support from the FSM national government, is intended to undertake immediate cost savings to enable Chuuk State to maintain a balanced annual budget in the short-term, with an overall aim of paying off its total accumulated State deficit of more than $40 million over the long-term. He noted that the annual cost savings from the RIF and the overall Financial Recovery Program will be deposited into a Debt Relief Fund that has been established to pay off Chuuk State's accumulated debt.