FSM COMPACT IMPLEMENTATION - NEXT STEPS

UNCLAS SECTION 01 OF 02 KOLONIA 000069

SENSITIVE
SIPDIS

STATE FOR EAP/ANP; INTERIOR FOR OIA

E.O. 12958: N/A
TAGS: FM PGOV EAID
SUBJECT: FSM COMPACT IMPLEMENTATION - NEXT STEPS

REF: STATE 048532


1. (SBU) Summary. Pursuant to reftel, Ambassador discussed
follow-up actions to implement elements of the Compact of Free
Association with FSM President Emanuel Mori and separately, with
the Director of the Office of Statistics, Budget, Overseas
Development and Compact Management (SBOC) Fabian Nimea.
Director Nimea reviewed a list of actions that the Federated
States of Micronesia (FSM) aims to accomplish in a timely
manner, although not necessarily in time to meet all deadlines.
President Mori focused mostly on the financial crisis in Chuuk
and the erratic course of fiscal reform in that state. Both the
President and the SBOC Director observed that the FSM lacks the
internal capacity to fully and efficiently implement Compact
requirements, although they are clearly taking the challenge
seriously. End Summary.

CHUUK'S UNSTEADY COURSE


2. (SBU) At lunch on May 8, FSM President Mori shared with
Ambassador Hughes his deep concern about the recent resignation
of Chuuk's Director of Administrative Services Gillian Doone,
who has been the linchpin of fiscal reform in the FSM's largest,
debt plagued state. "Without Gillian, the reform of Chuuk is
doomed," Mori said. He lamented that the FSM simply had no one
else capable of maintaining strict financial discipline in
Chuuk. Under prodding from the FSM's Secretary of Finance,
Doone had subsequently agreed to remain on the job - for the
time being, Mori confirmed. However, Doone's position remained
precarious.


3. (SBU) Ambassador urged Mori and the FSM National Government
(GFSM) to provide more concerted, ongoing support to Doone, who
is isolated and buffeted by intense pressures that verge on
harassment, especially as public services continued to
deteriorate. Mori said he planned to meet shortly with Doone in
Pohnpei and additionally to travel to Chuuk on May 13. Mori
will urge Doone to return quietly to his administrative duties
and to drop his self-publicized intention to file a lawsuit
against Chuuk's Governor Simina. At the same time, Ambassador
asserted, the Governor needed to rescind his order to Doone to
disburse USD 450,000 for special allowances to Chuuk
legislators, which would break the state budget that Doone had
balanced meticulously and single-handedly. Mori affirmed he
would press the Governor. However, he also hinted that Doone
might leave in any event to run for public office, either for an
FSM Congressional seat or as Lieutenant Governor of Chuuk,
sharing a possible gubernatorial ticket with former FSM Vice
President Redley Killion. (Note: Such a powerful challenge to
incumbent Governor Simina would build steam for an exciting
electoral contest in Chuuk in April 2009 and serve as a
bellwether of significant reform.)


4. (U) In the meantime and irrespective of who runs Chuuk,
Ambassador reminded President Mori of the commitment of the GFSM
to a Joint Economic Management Committee (JEMCO) resolution of
August 2007 to provide "close and constant oversight" of that
state's financial management. The GFSM needed to pay closer
attention. Without the leadership of Doone or another manager
of similar caliber, Ambassador said the Department of the
Interior (DOI) might need to require that the FSM bring in an
independent accounting firm to handle Compact and other U.S.
federal program funds. In the absence of responsible
management, DOI would also consider a cutoff of funds in Compact
sectors for capacity building, the environment, and private
sector development. President Mori stressed he would deliver an
unequivocal message to the Governor, including on delays in
implementing an agreement to cut some 400 state positions.
Ambassador reminded that Chuuk's Reduction in Force (RIF),which
should have occurred last October, appeared to be a paper
exercise that still required verification before DOI could
release lump sum severance payments. Mori agreed to focus
attention in Chuuk on RIF personnel actions and issuance of
final salary checks.


5. (U) SBOC Director Nimea, who met with Ambassador on May 6,
shared letters he had sent to Doone and Chuuk's Attorney General
Joses Gallen, who heads the Chuuk Reform Task Force. The
letters note discrepancies in separate RIF lists that Gallen
sent to Governor Simina and to President Mori. Nimea has
requested clarification of the discrepancies, as well as
confirmation that Chuuk's 2009 budget excludes all the
supposedly terminated positions. He agreed to accelerate
attention in Chuuk to reconciling termination notices and
personnel action data with those employees who are enumerated on
the list(s). Ambassador noted that DOI is prepared to release
severance payments even on a partial basis to state employees
whose separation can be confirmed. Nimea stressed his
commitment to professional integrity, remarking that SBOC has a
serious responsibility to ensure there will be no misuse of

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Compact money, particularly in connection with the RIF. To
assist the verification process, Nimea said he might send one of
his own employees to Chuuk.

PROGRESS ON OTHER COMPACT ACTION ITEMS


6. (U) Regarding other areas of Compact implementation
(reftel),Nimea asserted that the working level meeting in San
Francisco of April 15-16 had clarified expectations and
established useful collaboration. He provided action updates as
follows:

--Fiscal Year 2009 Sector Proposals: SBOC will forward state
Compact sector proposals to DOI on a rolling basis, as soon as
they receive each submission. Ambassador urged Nimea to try to
arrange his travel schedule so that he could accompany DOI grant
officers on their May-June budget consultations throughout the
FSM states.

--USD 3 Million Maintenance Grant: Nimea expressed appreciation
for the initiative launched in San Francisco to provide each of
the four FSM states USD 750,000 for repair and maintenance of
infrastructure projects. Once the DOI grant is signed,
President Mori and Ambassador Hughes will try to schedule a
joint media event, encouraging the state governments to follow
up with prompt submission of their proposals to repair projects
related to the infrastructure of health, education, potable
water and public safety.

--Capital Infrastructure: President Mori and Director Nimea
provided assurances that the new Program Management Unit (PMU)
attached to the President's office would identify and
reprioritize at least ten infrastructure projects by June 1.
While task orders were unlikely to be completed by that time,
they were optimistic that ten projects would be placed in the
pipeline for issuance of future task orders. In the long term,
Nimea advocated for weather-resistant, prefabricated
construction units for projects on FSM outer islands. Such
projects would cut costs and the time required for design
processes, he said. Regarding a notion to engage the U.S. Army
Corps of Engineers in infrastructure design and construction,
Mori and Nimea were both aware of the high cost that such an
option entailed. They preferred to hold this proposal in
abeyance as a last resort, in the event that the new PMU failed
to propel projects forward. Nimea remarked on the importance of
encouraging "FSM ownership" of projects, although he did not
suggest the means by which to do so.

--Economic Report: The Compact-mandated Section 214 report for
2007 will not be ready by June 1. However, the FSM recently
hired an economist from the USDA Graduate School (on a USD
50,000 contract) to prepare this report. He is now in Pohnpei
and has begun to work.

--Next JEMCO Meeting: While the Micronesians would prefer the
next meeting to take place in the FSM, Nimea said he understood
the demands on DOI this summer, and he was prepared to travel to
Washington. He hoped to restrict the size of the FSM delegation
in the interest of economizing and achieving results. The FSM
may seek to introduce more of its own JEMCO resolutions at this
session.

COMMENT


7. (SBU) Although the Mori Administration is deeply engaged in
discussions on Compact implementation, the President and his
officials tend to lack a sense of time urgency, focus and
deliberate strategies to obtain results. Their leverage over
the FSM states depends upon the bestowal of benefits as well as
informal political persuasion. Few engineers and accountants
exist in the FSM, which remains at a fragile stage of
development. Technical capability across the board is limited.
While the Micronesians continue to struggle with Compact
compliance, other nations are already actively implementing
projects for them. In general, the FSM would welcome
streamlining of Compact directives and closer partnership with
Americans and engineering consulting firms on the ground. As
fuel prices continue to rise and climate change and access to
food loom as more urgent issues, we will need to demonstrate
more prominently how the Compact can help meet the most pressing
needs of the people.
HUGHES