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IMF reports Economic Growth for FSM

Palikir, Pohnpei (FSM Information Services): November 18, 2010 - Yesterday, President Mori met with representatives of the International Monetary Fund (IMF) to discuss the results of their "Article IV Consultation Mission to the FSM."

Effectively, the team from the IMF Asia Pacific Department, composed of two advisors, Akihiko Yoshida and Benjamin Pereira, and two economists, Pelin Berkmen and Waikei Raphael Lam, were accompanied on their mission by Sally Pedersen, ADB Human Capacity Development Specialist for the Pacific Region.

Mr. Yoshida explained to President Mori that the team traveled throughout Pohnpei and Chuuk during November 8-17, and met with a wide range of people from the national and state governments and from the private sector to discuss the current economic outlook for FSM and the policies needed to promote sustainable growth. "It's a biannual check-up of the economy," said Berkmen.

The team brought some good news, spotlighting that in FY2009, the FSM economy grew for the first time in three years. They expect this growth to continue modestly in FY2010. However, they also stressed that with the annual decreases in Compact funds over the next 13 years and the continued outbound migration of the population, the FSM is likely to see its economic growth stunted if certain reforms are not soon established.

Yoshida and Berkmen recommended that the National Government focus its efforts on the pending tax reform. They believe that the additional revenue which will be generated by the tax reform, coupled with cuts in expenditures, will help in covering the financial gap which will result from the upcoming decreases in Compact funding. They also emphasized the obvious need to continue developing the private sector, as well as the need to promote foreign investment.

"You have to be frank with me," said President Mori, "who can help us solve these problems?"

Berkmen said the IMF conducts these country assessments to help promote policies - such as tax reform for FSM - that they believe will contribute to sustainable development. She offered that the IMF can provide technical assistance and aid in drafting legislation; however, the IMF does not participate in long-term lending for any member country, only short-term lending for countries in a situation of crisis. That being said, the IMF assessments can be used as a tool to provide information and negotiate loan terms with other donor partners.

Ms. Pedersen confirmed that Asian Development Bank always refers to the IMF's Article IV Consultations as a basis for the economic analysis of their operations with a national government. "The IMF Country Consultation is our Bible in terms of economic assessment and understanding," said Pedersen.

President Mori thanked the IMF team and Ms Pedersen for their visit, informing them that he will be looking forward to obtaining the final report from the IMF. The final Article IV Consultation Report should be rendered available in early 2011, on www.imf.org/external/country/fsm. The FSM became a member country of the IMF on June 24, 1993.