Government of the Federated States of Micronesia

National Government and Chuuk commit to Plan of Action

PALIKIR, Pohnpei (FSM Information Service): June 11, 2002 - President Leo A. Falcam, led a delegation to Chuuk State to continue discussions on the State's ongoing financial problems and to develop joint national and state actions to accelerate financial recovery.

The President's delegation met with the Governor and a cross-section of the State's leadership on June 7-8 2002. The mutual agreements of the two governments were memorialized in the form of a Memorandum of Understanding (MOU), signed on June 10, 2002. Implementation of the elements of this MOU will begin to put the State's finances back on a stable path.

In expressing the determination of the Federated States of Micronesia National Government to provide support to the State as it attempts to repay outstanding debts, fulfill obligations and restore financial stability, the President indicated his resolve in three specific areas.

First, to ensure that all public funds be administered according to national and state laws and consistent with Treaty obligations with the USA. Second, to ensure to the greatest extent possible that bi-weekly gross wages of Chuuk State employees are fully paid without delay. And third, to ensure that the interests of Chuuk State's municipal governments are protected with respect to their remaining balances of Capital Improvement Project (CIP) funds received as Compact economic assistance from the USA.

The Governor of Chuuk State, the Honorable Dr. Ansito Walter, acknowledged that the State was suffering from financial problems that resulted from over-projection of revenues and subsequent over-appropriation of the State's budget. He also committed his administration to ensuring that the upcoming fiscal year budget would not repeat the same mistakes. The Governor also pledged his full support for certain financial austerity measures that, by reducing operating expenses and reducing new CIP commitments, will free resources to begin addressing the State's urgent debts and land purchase requirements.

In making commitments on behalf of the State, the Governor also made three requests to the President to support the State's efforts. The President responded favorably and the two leaders expressed their desire to have a single, clear and comprehensive MOU that will guide inter-governmental financial relations and serve as an action plan to initiate financial recovery, improve financial accountability, and protect against a repetition of fiscal problems.

Based on the ongoing efforts of a Joint Financial Stabilization Task Force and the dialogue during the June 7-8 meetings, an MOU was developed to incorporate a 12-point action plan. Four of the elements were carried forward from previous agreements while eight new items were agreed.

Among the most significant breakthroughs, the State was pleased to know that CIP projects funds that had been frozen awaiting a reconciliation of financial records will be made available, thereby increasing the State's CIP project fund availability for FY2002 from $5 million to $10 million. In addition the parties agreed upon an administrative arrangement that will ensure that the State's gross wage bill obligations will be fulfilled for the remainder of the fiscal year. In summary the parties agreed to a series of measures, including the mobilization of external technical assistance, which will support the Governor's express desire to improve financial accountability of the State of Chuuk.

The MOU has a series of specific dates agreed upon to ensure that the wishes of the National and State leaders will be implemented in a timely fashion. The President and Governor concluded their meetings with a joint commitment to implement the actions agreed and to monitor progress very closely.