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FSM Exits JEMCO Meetings with Compact Funding Intact

Three Resolutions adopted, focusing on Chuuk fiscal controls, Compact reporting and project budgeting

PALIKIR, Pohnpei (Office of SBOC): September 19, 2008 - Collaboration, partnership and working toward the benefit, empowerment and self-reliance of the nation and its people were the major themes the FSM carried with it to Washington D.C. at the most recently concluded US-FSM Joint Economic Management Council (JEMCO) meetings held on August 28^th and 29^th.

Fabian Nimea, Director of the Office of Statistics, Budget & Economic Management, Overseas Development Assistance and Compact Management (SBOC), once again headed the FSM delegation to JEMCO and stressed the need to not deviate from the structured plan of Compact II and achievement of the FSM's Strategic Development Goals.

"We must come to an understanding together that will ensure that we continue full funding of all Compact grants....this is not a matter of dependency. This is a matter of staying the course," stated Nimea in his opening statements at the JEMCO meetings. This was a central point for the FSM: that Compact funding should remain fluid, despite challenges and other unforeseen circumstances.

Nimea reiterated this point by quoting the U.S. Ambassador to the FSM, Her Excellency Miriam Hughes, calling for a "streamlined approach to development." Ambassador Hughes had made her statements at the FSM Capitol in Palikir, on the occasion of a special ceremony for the grant award of an Infrastructure grant of $3 million for immediate and needed upgrades to health facilities, schools and public safety buildings in the nation.

Nimea's remarks set the tone for the JEMCO meetings early, where it was expected that the U.S. would take a somewhat hard-line approach to what the world's greatest power viewed as under-performance by the FSM in the first five years of Compact II.

Producing tangible outcomes toward development objectives through effective expenditure of Compact funds remains the central target for the U.S. as it pushes the FSM toward greater global harmonization. Through the implementation of the first five years of the Amended Compact of Free Association between the two sovereign nations, the U.S. had hinted at the possibility of the stoppage of vital funding allocations for the Environment, Private and Public Sectors - three of the six major categories under the Compact.

Nik Pula, Director of the Department of Interior's Office of Insular Affairs and Chairman of the JEMCO reiterated the U.S. position since the development of the FSM Strategic Development Plan, in 2003. "The Compact was never intended to underwrite the entire FSM economy, nor all of the operations of its national and state governments," he stated in his opening remarks. The Compact, stated Pula, is an "economic springboard."

Pula, making it clear that the U.S. wants the FSM to develop more quickly than it did under Compact I, which ran from 1986 - 2001, stated that the FSM has since 2004 treated the Amended Compact too much like a safety net, and that the result is "lost time, lost opportunities, a declining economy and a continuing over-reliance on public-sector employment." Compact II runs from 2004-2023.

Yet through successful dialogue and a focus on partnership to meet challenges, the FSM and U.S. members of JEMCO were able to reach consensus on continued methods of improvement for both delivery and expenditure of Compact funds, which account for over 40% of the federation's Gross Domestic Product, and adopted resolutions that seek closer cooperation between the FSM, its four State Governments and the U.S. in implementation of the overall Compact program moving forward.

Perhaps nowhere is this prerogative more apparent than in Chuuk State, the most populous, and by extension, the most influential island group in the federation. From a broad perspective, the fate of the Federated States hinges directly on the actions of Chuuk.

As such, the first JEMCO Resolution from the August sessions - 2008-01 - was a combination of the recent U.S. tough-love approach five years in and the FSM's ability to utilize the diplomatic approach to problem-solving and international relations. The essence of the resolution states that that the FSM National Government (FSMNG) "will continue to provide close and constant oversight of the total financial management" of the state of Chuuk, including oversight of the Chuuk Financial Control Commission (CFCC), the hiring of professional financial personnel and the provision of quarterly audit reports on performance of the Department of Administrative Services.

JEMCO Resolution 2008-02 allocates just under $74.5 million in Compact funding for the Education, Health, Capacity Building and Infrastructure sectors in the FSM, with approximately $12.5 million still available to the Private, Environment and Capacity Building sectors, which will be allocated based upon the submission by FSM to the U.S. of project-based proposals toward the end of September.

Significantly, this will be the first time since JEMCO's inception in 2004 that there will be a full allocation of all Compact funds available, inclusive of all FY09 sector grants of $81 million and carry-over funds from FY07 of over $5.4 million. The carryover will adhere to the FSM national-state distribution formula and remain within the relevant sectors and to the respective states from which they emanated.

JEMCO Resolution 2008-03 addresses audit findings and questioned costs and resolves that the OIA and the FSM Government work to develop an aggressive program to resolve audit findings and recover questioned costs when warranted, as identified in the FY07 Single Audits for the FSM.

The Office of SBOC has already begun the work set out by the JEMCO Resolutions, sending some of its senior staff to the States of Chuuk and Kosrae to assist in the principles of project-based budgeting and to build capacity in this area going into Fiscal Year 2009. A process that will also assist in improved Compact reporting, both quarterly and annually.

Additionally, the FSMNG and Chuuk State have worked together to address the all-important vacancy at the helm of the Chuuk Department of Administrative Services, nominating Mr. Tiser Reynolds as the new Director. Reynolds is currently the Director of the Kosrae Department of Finance and Administration.

JEMCO will meet again no later than September 26 this year to review FSM proposals under the Environment, Private and Capacity Building sectors and to allocate unallocated funds available for FY09.