FSM GOVERNORS SLAM COMPACT IMPLEMENTATION

UNCLAS SECTION 01 OF 02 KOLONIA 000104

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EAID ECON FM
SUBJECT: FSM GOVERNORS SLAM COMPACT IMPLEMENTATION

SENSITIVE BUT UNCLASSIFIED - ENTIRE TEXT


1. Summary: The Governors of Yap and Pohnpei, which are the
two most prosperous and best managed of the four states in the
Federated States of Micronesia (FSM),complained urgently to
Ambassador that unsatisfactory administration of the Amended
Compact threatens to cripple their government operations. They
blamed cumbersome and unresponsive bureaucratic structures at
the FSM national level for obstructing the flow of funds that
are vital at the grassroots. Department of the Interior (DOI)
oversight visits from Honolulu are also a source of tension.
The Governors advocated for a DOI office attached to the U.S.
Embassy. Ambassador supports this and other recommendations in
Para 12. End Summary.

COMPACT SECTOR CUTOFFS THREATEN ESSENTIAL SERVICES


2. Governor Sebastian Anefal of Yap State charged that poor
administration of the Amended Compact was "hurting the wrong
victim." Yap is a small but frugal and responsibly governed
state, his Director of Health reminded. Governor Anefal is a
respected former FSM Foreign Secretary. As a key negotiator of
the Amended Compact, he has a solid grasp of joint statutory
requirements. Ambassador Hughes conferred with Anefal and
others during a consular outreach trip to Yap July 9-10.


3. Anefal inferred from budget consultations in his state in
June with Department of the Interior (DOI) representatives, that
Compact funds would be withheld in FY-2009 in the environment,
capacity building and private development sectors owing to the
absence of state-specific plans for their use. In all the FSM
states, funds in these sectors continue to support recurring
government operations. DOI's letter to President Mori of July 9
affirms an intention to withhold money in these sectors "unless
there are explicit and measurable ties back to the purpose of
Compact funding and specific outcomes proffered in the FSM's
National Strategic Plan."


4. Over 23 percent of the FY-2009 Yap budget depends upon
Compact funds in these three sectors, totaling USD 2,076,032.
Anefal informed President Mori that a suspension of assistance
in these sectors would create a financial crisis that could
result in bankruptcy and the breakdown of essential public
services. "The very viability of the Yap State Government may
hang in the balance," he said.

GOVERNORS BLAME DYSFUNCTIONAL FSM COMPACT MACHINERY


5. Governor Anefal knowledgeably asserted that the FSM National
Government (FSMNG) was responsible for preparing a nationwide,
state-specific plan for the use of funds in the three sectors.
He blamed the FSMNG for failure to utilize DOI grant awards
totaling USD 75,000 to help develop the required programmatic
blueprints.


6. Pohnpei's dynamic Governor John Ehsa, who met with
Ambassador on July 14, accused the Mori Administration of
having created a dysfunctional reorganization. Ehsa was a
former FSM Finance Secretary and administrative officer with the
FSM Compact negotiating team. He charged that Mori's creation
of an unwieldy Office of Statistics, Budget, Overseas Aid, and
Compact Assistance (SBOC) had impeded internal management of
Compact transactions. Funds failed to flow to the states on
time, creating constant crises. SBOC did not communicate, he
said. In Yap, Health Director James Gilmar complained, "We get
worried and desperate when (Compact) cash doesn't flow. We have
no control over the money. It would be better if we could
manage the money ourselves."


7. Anefal and his Cabinet expressed outrage that SBOC had
transferred Yap's entitlement of USD 700,000 worth of 2004
carryover funds in the capacity building sector to help cover
compensation to employees who lost their jobs in Chuuk State's
mandated reduction-in-force. Under instructions from SBOC, Yap
had submitted detailed plans for 42 projects to which the
Yap-designated carryover funds might be applied. Instead last
March, SBOC and DOI transferred Yap's considerable share to
Chuuk without consultation, the Governor alleged. Yap's Speaker
of the Legislature Charles Chieng commented separately, "We are
all concerned about Chuuk because the failure of that state
affects us all. But why did they get our allocation?" Governor
Anefal described a bumbling inability of SBOC staff to find the
right forms or to clarify procedures. "We are confused," he
said repeatedly, noting that the myriad of technical
requirements of Compact Two were further compounded by President
Mori's inopportune reorganization of the central Compact
bureaucracy. "It boggles the mind," he said.


8. Anefal explained the careful work that Yap State had
invested in preparing a prioritized proposal for 13
infrastructure projects, which DOI had strongly encouraged. Yap
submitted its list promptly to the revamped Project Management

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Unit (PMU),which President Mori created and attached to his
office. The PMU never reacted to Yap's list, according to
Anefal. He learned belatedly and only informally that the PMU
had authorized three of the 13 projects, which were not
necessarily high priorities. Ehsa called the PMU a failure. He
said it would be preferable for the U.S. Army Corps of Engineers
to consult directly with the FSM states and oversee
infrastructure. Ehsa asked that DOI respond to a specific
Pohnpei request to engage the Army Corps of Engineers to oversee
reinvigoration of Kolonia's hydroelectric dam. Ambassador
Hughes has made that request to Honolulu's DOI Office, which is
responsible for Compact support in the FSM, and will follow up.

CALLS FOR CLOSER PARTNERSHIP


9. In both states, interlocutors complained that periodic DOI
oversight visits from a distant base in Honolulu, however well
intentioned, were intrusive, and they generated tension. "The
Compact does not require micromanagement of state budgets," Ehsa
asserted. While Micronesians needed help, he implied they were
sovereign citizens and no longer children. The timing and
perceived intrusiveness of the Honolulu visits had inspired
passive resistance.


10. Ambassador Hughes responded that DOI was charged with
serious responsibility to ensure effective application of U.S.
taxpayers' money, which was also intended to help FSM citizens
move forward. Together, we needed to analyze the root causes of
why the FSM had failed to absorb and effectively utilize
valuable Compact money, particularly at the local level, where
serious deprivation and passivity existed, she said.


11. Micronesian interlocutors insisted that in order to form
more effective partnership with the U.S., some DOI
representatives needed to be based in Pohnpei, working under the
U.S. Embassy umbrella and available to collaborate with the
Micronesians on a daily basis. Also, they said DOI grant
managers should not be charged with Compact sector specialties,
but rather be assigned to cover Compact issues across-the-board
in particular states, building programs and day to day positive
relationships. Ambassador concurs with this recommendation.



12. A summary of these and other notions that emerged in
informal talks with Yap and Pohnpei officials follows:

-- Send all four FSM Governors to the August JEMCO meeting to
engage in frank discussions;

-- Invite FSM Speaker of the Congress Isaac Figir (Yap) to JEMCO
to articulate an overarching FSM point of view about why Compact
implementation is difficult for the Micronesians;

-- Encourage DOI to deal more directly at the state level and
reduce the FSMNG centralized Compact administrative bureaucracy;

-- Engage the U.S. Army Corps of Engineers to oversee
infrastructure projects;

-- Establish a DOI office attached to the U.S. Embassy in
Pohnpei, including engineering representatives from a private
sector firm;

-- Reevaluate the relevance of the FSM's financial allocation
formula for each of the four states;

-- Use the Compact to reward states that manage well;

-- Recognize that the transition from the largesse of Compact
One to the stringent accountability of Compact Two was abrupt,
confusing and beyond the capacity of fragile Micronesian
governments to digest;

-- Brainstorm on more flexible applications of the Amended
Compact to today's shifting and most urgent needs, including
fuel and alternative energy.
HUGHES