‘FSM has the money but it’s not using it’

The Federated States of Micronesia has the money, but it is not using it to spur economic growth, according to the U.S. Office of Insular Affairs.

Acting OIA Director Thomas Bussinich testified yesterday before the U.S. House Subcommittee on Insular Affairs on the FSM’s implementation of its Compact of Free Association with the United States.

OIA administers the Compact, which requires the United States to grant the FSM a total of $2.3 billion in aid from 2004 to 2023. The FSM and the United States are now in the fifth year of the 20-year period of financial assistance under the Compact.

“Despite the hard work and good intentions of many, we are not satisfied with the results and outcomes that we have seen,” said Bussinich.

In the past five years, according to Bussinich, the FSM has used the Compact funds more as a safety net than as a springboard for economic development. “The result is lost time, lost opportunities, a declining economy and a continuing over-reliance on public sector employment,” he said.

Bussinich cited the following as some of the failures on the part of the FSM government:

-In 2004 through 2008, the FSM has completed only three infrastructure projects, and more than $67 million of the $82 million—approximately 83 percent—allocated for infrastructure grants in 2004 through 2007 remain unspent.

-Unspent funds for education and health from 2004 through 2007 amount to an additional $14.9 million or around 7 percent of funds allocated.

-The FSM’s failure to contribute matching funds—$6 million since 2004—for infrastructure maintenance has frustrated the Compact’s goal of institutionalizing maintenance practices by the governments.

-The FSM is also facing a challenge with the FSM Trust Fund, the proceeds of which will be used for education, health, and infrastructure when the annual grants cease after 2023. As of April 30, 2008, the market value of total assets of the FSM Trust Fund was $135.91 million. Of that amount, $115.6 million represented government contributions, including $85.3 million from the United States and $30.3 million from the FSM. The return on assets during the current fiscal year from Sept. 30, 2007 to April 30, 2008 has been about –5 percent.

“In conclusion, the FSM faces very serious challenges,” Bussinich said. “Its challenges are not resources; it has the financial resources to implement a large and important program of improvement to schools, health facilities and other critical infrastructure, with beneficial effect for the FSM’s economy. What the FSM needs is the will to use its resources as a springboard to better sector performance and improved economic growth.”