Foreign Assistance: US Funds to Two Micronesian Nations Had Little Impact on Economic Development
Friberg, Emil (2000). Foreign Assistance: US Funds to Two Micronesian Nations Had Little Impact on Economic Development (Report). Washington, DC: Government Accountability Office. p. 156.
- Has attachment: File:9CGU53LF.pdf
Abstract: The Federated States of Micronesia and the Republic of the Marshall Islands spent nearly $1.6 billion in Compact of Free Association funds for fiscal years 1987 through 1998. The Federated States of Micronesia spent $1.08 billion, while the Republic of the Marshall Islands spent about $510 million. Compact funds were used for general government operations, capital projects such as building roads or investing in businesses, making debt payments, and improving targeted sectors such as energy and communications. While the Federated States of Micronesia concentrated much of its spending on supporting government activities, the Republic of the Marshall Islands emphasized capital spending. Although expenditures were reported in areas specified by the Compact, annual financial statements do not always report on the final use of Compact funds. Both countries issued Compact revenue-backed bonds in order to obtain more funding during the earlier years of the Compact.
Since 1987, the two countries, particularly the Federated States of Micronesia, have made some progress in achieving economic self-sufficiency, as measured by their governments’ lower reliance on U.S. funding. However, both countries remain highly dependent on U.S. assistance, which still provides more than half of total government revenues in each country. Scheduled decreases in Compact funding as well as increases in locally generated funds have reduced reliance on U.S. funding. Although the amount of Compact funding has decreased since 1987 as required by the terms of the Compact, both countries have received other U.S. funding through their use of U.S. federal services and programs.
Compact expenditures to date have led to little improvement in economic development in the Federated States of Micronesia and the Republic of the Marshall Islands. Per capita incomes, when adjusted for inflation, have stagnated in the Federated States of Micronesia and fallen in the Republic of the Marshall Islands since the beginning of the Compact. Compact funds spent to support general government operations have maintained high government wages and a large level of public sector employment that have discouraged private sector growth. Compact spending to create and improve infrastructure has not contributed to significant economic growth. In addition, Compact-funded business ventures have generally failed. For example, the Federated States of Micronesia spent $60 million in unsuccessful fisheries ventures. During its work and site visits to 80 Compact-funded projects, GAO found that many of these projects had experienced problems because of poor planning and management, inadequate construction and maintenance, or misuse of funds.
While the Compact set out specific obligations for reporting and consulting regarding the use of Compact funds, the governments of the Federated States of Micronesia, the Republic of the Marshall Islands, and the United States have provided limited accountability over Compact expenditures and have not ensured that funds were spent effectively or efficiently. For example, the governments of the Federated States of Micronesia and the Republic of the Marshall Islands provided the U.S. government with inadequate economic development plans and Compact spending reports. Further, the U.S. government, specifically the Departments of the Interior and State, did not meet the Compact requirement to consult annually with both countries during the first 7 years of Compact assistance. In addition, the Department of the Interior has devoted few resources to monitoring Compact assistance. Moreover, disagreements between the Departments of State and the Interior limited monitoring, as did a Compact provision that guarantees funding to the two nations.
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MAG: 319605073 CorpusID: 153064611
