FSM GOVERNMENT RESPONDS TO COMPACT CRITICISM WITH HURT,

UNCLAS SECTION 01 OF 03 KOLONIA 000108

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV EAID FM CH
SUBJECT: FSM GOVERNMENT RESPONDS TO COMPACT CRITICISM WITH HURT,
EVASION AND A GLIMMER OF DIALOGUE

REF: KOLONIA 104


1. (SBU) Summary. Ambassador Hughes asked to call upon
President Mori on July 25 to discuss shortcomings in
implementation of requirements of the Amended Compact on the
part of the Federated States of Micronesia (FSM). With sorrow,
Mori said he felt wounded by the tone of recent communications
from the U.S. Department of the Interior, which had received
broad distribution within his government and had undermined his
political standing. He asserted his ongoing commitment to the
reform of Chuuk State. The President asked for special help
with fuel, as state utility corporations were running out of
cash to import petroleum. On all issues, he spoke in
generalities, with no reference to specific performance plans or
national strategies. The President agreed to engage in more
frequent dialogue on difficulties and progress with the Compact.
End Summary.

TONE TRUMPS SUBSTANCE


2. In response to a request from Ambassador Hughes, President
Emanuel Mori and key members of his Cabinet met on July 25 at
FSM headquarters in Palikir to discuss U.S. concerns about FSM
shortfalls in fulfilling requirements of the Amended Compact.
The meeting lasted over an hour. Also present were Chief of
Staff Kasio Mida; Secretary of Finance Finley Perman and Finance
Advisor Evelyn Adolph; Director of Statistics, Budget, Overseas
Assistance and Compact Management Fabian Nimea; and Department
of Foreign Affairs Assistant Secretary Jane Chigiyal.


3. (SBU) Quietly and sorrowfully, President Mori said the tone
of recent communications from the U.S. Department of the
Interior (DOI) had wounded him and his administration. He
referred to letters and e-mails that had received broad internal
distribution in Palikir and among state governors. Ambassador
responded that DOI bore a major responsibility to the U.S.
Congress and American taxpayers to ensure that our funds were
administered accountably and in compliance with Compact terms.
Lack of FSM responsiveness on such fundamentals as budget
criteria and performance goals was a serious issue, particularly
prior to the annual U.S.-FSM Joint Economic Management Committee
(JEMCO) meeting at the end of August. Time was running out, she
said, and the FSM National Government (FSMNG) had failed to
engage on key, ongoing objectives. She expected the FSM to
appreciate the gravity of anticipated Compact funding cuts and
to understand U.S. frustration.


4. (SBU) Mori did not dispute the substance of U.S. concerns.
Instead, he returned repeatedly to the style of recent DOI
communications. A letter of July 9 from DOI Office of Insular
Affairs Director Nikolao Pula had reached the Governors, members
of the FSM Congress and lower ranking FSM officials before he
himself received the letter under cover of a diplomatic note.
Mori protested what he construed as condescension from "a
relatively low ranking U.S. official to the head of a sovereign
nation." Ambassador clarified that Pula was a senior U.S.
executive who had signed the letter in his capacity as the DOI
Director responsible for Compact implementation and as the
distinguished Chairman of JEMCO. Mori remarked that the tone of
the letter was inappropriate; it had humiliated him and
undermined his political standing with the FSM Congress, which
was likely to demand that he answer questions on the perceived
diminution of the stature of the Office of the President.


5. Ambassador Hughes agreed that tone and protocol were very
important to the success of diplomatic and inter-governmental
relationships. In particular, the U.S. Embassy had a role to
play to ensure that respectful communication was directed
through appropriate channels, and we would redouble our efforts
to do this, she said. Difficulties sometimes arose because of
the legacy of our Trust Territory history. As a consequence,
even after 22 years of FSM independence, some U.S. Government
agencies remained used to pursuing their objectives through
informal channels. The Embassy and Washington were working hard
to try to improve coordination.


6. Mori reminded that when Ambassador had presented her
credentials last September, he had emphasized that he sought "to
elevate the tone of our relationship with the United States."
In general, he felt the two nations had made significant
strides. In the case of letters from DOI to himself, however,
the President suggested that Secretary Kempthorne would be a
more appropriate signatory. He praised the support and
relationship he had with the Secretary of the Interior. In
general, he said the FSM relationship with DOI was valuable and
vital. Ambassador reminded that we were all one U.S.
Government, and the Embassy would seek to ensure that all
communication was coordinated and satisfactory.


KOLONIA 00000108 002 OF 003



7. Mori then produced another letter from the U.S. Congress
dated July 22, which Ambassador and the U.S. Embassy had
unfortunately not received. Ten Congressional representatives
had signed the letter, which urged progress in five Compact
areas. Mori said simply that he appreciated the eloquent style
and usefulness of this letter. He anticipated the FSM could
"easily" address all five areas of concern pertaining to the
startup of infrastructure construction projects; commitment to
maintaining balanced budgets; production of a narrative on how
to address the Compact decrement; adherence to Compact reporting
deadlines; improvement of performance indicators in health and
education; and development of a coherent strategy to promote
private sector investment. No one at the meeting offered any
information on how the FSM would achieve all these objectives.
Mori was apparently referring to the ease of responding to the
Congressional letter, rather than satisfying all the contents.

MORI REAFFIRMS CHUUK REFORM BUT LACKS A PLAN


8. Regarding the deepening crisis in Chuuk State, President
Mori indicated his "serious concern" following Governor Simina's
firing of Director of Administrative Services Gillian Doone on
July 11. Ambassador referred to an egregious history of fiscal
irresponsibility in Chuuk and stated DOI's intention to shortly
cease delivery of funds in three sectors (Capacity Building,
Private Sector Development and Environment),unless the FSMNG
could restore close and constant supervision of Chuuk finances.



9. (SBU) Mori said he would not try to block DOI's plan. He
said he was angry that the Governor had not consulted with him
about firing an official whom they had both agreed to appoint.
The Governor had subsequently failed to respond to two strong
Presidential letters. In his letters, Mori said he had
threatened to cut off all FSMNG support to Chuuk unless the
Governor identified a capable replacement for Doone and/or
provided a stabilization plan. Governor Simina subsequently
agreed to meet the President in Chuuk on July 26 and to travel
with him by boat the next day to a Mortlocks island leadership
conference.


10. Mori said he had two possible candidates in mind to replace
Doone. Recalling how Simina had agreed to appoint and support
Doone, Mori said that in his opinion, the Governor was capable
of upholding his commitment to fiscal responsibility, even
though he had succumbed to undisclosed political pressure to
dismiss Doone. The firing was "a political act," Mori
commented. Meantime, he concurred with Ambassador that
conditions in Chuuk were deteriorating dangerously. Electricity
blackouts of five days running, which further degraded water and
sewage, indicated the severity of cash flow and humanitarian
problems.

FSM NEEDS HELP WITH ENERGY


11. In addition to Chuuk, Mori said the FSM states of Pohnpei
and Yap faced crises with fuel payments. He lamented that
rising costs associated with fuel were likely to unbalance
budgets and push back financial targets across the board. FSM
leaders were exploring all options to cope with shortfalls. At
a recent Chief Executive Council meeting in Kosrae, President
Mori and the Governors agreed to set up one emergency task force
on fuel and another on food. However, the chairs of these
so-called task forces have not yet been named, Mori said in
response to a question from the Ambassador. He asked if the
United States could please try to assist with the energy crisis.


12. Ambassador responded that the U.S. would certainly consider
this emergent need. In addition, she advised that the Chinese
Ambassador, who is the dean of the small diplomatic corps in the
FSM, had enthusiastically agreed with a suggestion of the U.S.
Ambassador to convene monthly meetings with the U.S., Australia
and Japan to discuss our assistance programs and encourage donor
coordination. China planned to convene the first meeting soon,
and would probably be amenable to putting energy at the top of
the agenda, Ambassador Hughes said. President Mori and SBOC
Director Nimea warmly welcomed the notion of this type
coordination.

COMMENT - CRITICISM OPENS A CRACK OF DIALOGUE


13. (SBU) Respectful communication is, of course, a
fundamental mode of operation wherever Americans serve. In the
case of a transitional society, such as the FSM, where
traditional values and hypersensitivity to so-called 'colonial'
overtones permeate politics, we will need to tread firmly but
very carefully at a time of deepening economic and governance
challenges. Ambassador explained to President Mori the valid

KOLONIA 00000108 003 OF 003


reasons for intense U.S. frustration with poor FSM Compact
performance, particularly the growing concerns of the U.S.
Congress.


14. (SBU) However, Mori's attention was focused elsewhere and
he declined to engage on specifics. He said he was proud of
Compact progress, and he could not afford further problems with
the FSM Congress, which elected him and will determine whether
he gets a second term of office in three years. His Cabinet
appears to be fractured, particularly along lines of FSM state
affiliations. Vice President Alik (Kosrae) is rarely seen with
the President. When Mori asked why the Vice President was not
present at this meeting, no one in the room seemed to know where
Alik was. The Finance Secretary (Pohnpei) showed up a half hour
late. In the meantime, Mori and a small inner circle of
advisors from Chuuk appear to be concentrating their priorities
on such ambitious projects as construction of submarine fiber
optic cable linkages to Chuuk and Kosrae (estimated cost of USD
40 million); decentralization of FSM passport processing to all
four states and FSM diplomatic missions in Washington, Guam and
Honolulu (estimated USD 800,000); startup of a national fuel
corporation; and purchase of small, Chinese manufactured
aircraft to launch a new outer island transportation company
(estimated USD 9 million purchase). Communication on these and
other issues is confined to a small FSM executive circle.


15. (SBU) In the midst of these competing FSM priorities, U.S.
Congressional testimony and follow-up correspondence has focused
a small but important spotlight on the program that delivers
most FSM income and sustains some 65 percent of their government
operations. The FSM Congress and the four states have begun to
demand a dialogue with the executive branch on Compact
implementation. The challenge on the U.S. side will be to
continue to press for an examination of Compact issues without
fanning nationalist sentiment on the part of the states, which
are dissatisfied with Palikir, or fostering passive resistance
to well intentioned U.S. guidance, which is a typical FSM
reaction to perceptions of foreign intervention. It also
behooves the U.S. side to try to analyze, perhaps in dialogue
with the Micronesians, the root causes of a failure to absorb
more effectively our generous aid and to comply with terms of
the Amended Compact. We have a timely opportunity to think
outside the box in terms of improving Compact implementation and
our partnership with this remote island developing nation.
SIGNATURE