FSM urged to open market to outside investors

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Posted on Jul 13 2000
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The Federated States of Micronesia should start taking aggressive steps to enforce institutional reforms and a commitment to promote private sector growth in order to encourage the entry of foreign capital into the country, according to Bank of Hawaii senior economist Dr. Wali Osman.

In a recent Bank of Hawaii report, Dr. Osman, an expert who looks at the region’s economic trends, proposed that FSM policy-makers adopt an economic change strategy based on two principal parameters.

Dr. Osman said FSM should adopt an institutional reform, and an explicit and irrevocable commitment to market principles and openness that will encourage the flow of outside capital to the country’s market.

The Bankoh report identifies two distinct periods in FSM’s economic conditions during the last decade: 1989-1993 being the growth and prosperity years; and 1994-1999 as the years of stagnation and contraction.

This, even as the FSM economy generated a total gross domestic product (GDP) of $223.6 million in 1998, and an estimated $224 million last year. Bankoh records disclosed per capita GDP rose slightly to an estimated $1,977 last year from $1,961 in 1998.

Between 1989 and 1993, FSM’s GDP gained a robust 5.1 percent annually, while per capita GDP increased 3.5 percent a year. In the period covering 1994 to 1999, GDP growth averaged only 0.9 percent a year, except for a short-lived gain in 1995.

In 1999, per capita GDP stood at $1,927, which is slightly higher than the ten years ago’s $1,908.

FSM’s economy is sustained mainly through public sector that includes government wages, salaries and benefits. These support the country’s private sector engaged mostly in fishing, tourism, garment manufacturing and farming.

Dr. Osman pointed out that until outcome of negotiations between the United States and FSM governments under the Compacts of Free Association is known, the usual economic forecasting parameters do not apply and any forecast would be nothing than mere guesswork.

FSM entered into an agreement with the U.S. in 1986, which expires next year. Under the Compacts, FSM conducts its domestic and foreign affairs as a sovereign nation, while the U.S. is granted exclusive strategic access to FSM’s waterways.

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