Identifier
Created
Classification
Origin
09KOLONIA123
2009-09-13 23:51:00
CONFIDENTIAL
Embassy Kolonia
Cable title:  

FAREWELL REFLECTIONS: A SPECIAL RELATIONSHIP REQUIRES

Tags:  PREL EAID FM CH 
pdf how-to read a cable
VZCZCXRO4459
RR RUEHKN
DE RUEHKN #0123/01 2562351
ZNY CCCCC ZZH
R 132351Z SEP 09
FM AMEMBASSY KOLONIA
TO RUEHC/SECSTATE WASHDC 2358
INFO RUEHC/DEPT OF INTERIOR WASHINGTON DC
RHMFISS/CDR USPACOM HONOLULU HI
RUEHKN/AMEMBASSY KOLONIA 2726
RUEHBJ/AMEMBASSY BEIJING 0095
C O N F I D E N T I A L SECTION 01 OF 05 KOLONIA 000123 

SIPDIS

STATE FOR A/S KURT CAMPBELL AND DAS SCOTT MARCIEL; INTERIOR FOR
A/S ANTHONY BABAUTA

E.O. 12958: DECL: 9/14/2019
TAGS: PREL EAID FM CH
SUBJECT: FAREWELL REFLECTIONS: A SPECIAL RELATIONSHIP REQUIRES
IMPROVED AID DELIVERY; CHINA BIDS HIGH

CLASSIFIED BY: Miriam K. Hughes, Ambassador, Amembassy Kolonia,
State.
REASON: 1.4 (b),(d)
C O N F I D E N T I A L SECTION 01 OF 05 KOLONIA 000123

SIPDIS

STATE FOR A/S KURT CAMPBELL AND DAS SCOTT MARCIEL; INTERIOR FOR
A/S ANTHONY BABAUTA

E.O. 12958: DECL: 9/14/2019
TAGS: PREL EAID FM CH
SUBJECT: FAREWELL REFLECTIONS: A SPECIAL RELATIONSHIP REQUIRES
IMPROVED AID DELIVERY; CHINA BIDS HIGH

CLASSIFIED BY: Miriam K. Hughes, Ambassador, Amembassy Kolonia,
State.
REASON: 1.4 (b),(d)
1.(SBU) INTRODUCTION. Following are observations of Ambassador
Miriam Hughes as she prepares to depart post following a
two-year tour of duty. Comments are offered to provide insights
from a front-line perspective in a country that is subject to
unpredictable change and pressure. Ambassador has completed
farewell calls on officials of the four island states of the
Federated States of Micronesia (FSM),as well as the FSM
National Government (FSMNG). End Introduction.




2. (C) SUMMARY. The Federated States of Micronesia (FSM)
remains deeply attached to the United States and appreciates
American collaboration more than that of any other nation. At
the same time, Micronesians are anxious to gain access to easy
cash and to pursue short-term political advantages. To avoid
destabilization, we need to redirect resources available under
the Amended Compact of Free Association to expand our
partnerships on the ground. Despite generous U.S. assistance,
the FSM economy suffered one of the worst outcomes among the
Pacific nations in FY 2007 and FY 2008, according to a recent
report of the International Monetary Fund. Political tension
has deepened among the four states and the central government,
with the states increasingly perceiving the FSMNG as an obstacle
to their development. The top-down, intrusive mechanisms that
we use to administer Compact assistance have exacerbated
tensions and generated perceptions of interventionism. It is
timely to review progress and areas for improvement in our
Compact aid program. While U.S. interests are relatively
limited in Micronesia, we retain special obligations, and
geopolitical stakes are changing. Chinese influence is rapidly
expanding and contributing to malaise. Our overall relationship
with Micronesia remains strong, but some key elements hang in
the balance that could affect the unity of a weak Federation.
End Summary.



SIGNS OF CHANGE - CHINA PROPOSES A MONOPOLY ON FISH




3. (C) At the conclusion of a two-year tour of duty in the

Federated States of Micronesia (FSM),Ambassador Hughes observes
that this small island nation in the far western Pacific has
been buffeted by change and now confronts complicated choices
that are difficult for the Micronesians to manage. China, Japan
and to a lesser extent Australia, which all maintain active,
expanding embassies in the FSM, have stepped up their activities
in a nation that is situated close to the U.S. territory of Guam
and embraces one million square miles of ocean and coveted
fishing grounds. How we fulfill our obligations as a global
power in the Pacific is reflected on a small scale in the way we
conduct relations in Micronesia. Our special relationship with
this former Strategic Trusteeship Territory remains a source of
pride and security to the FSM. Under an original Compact of
Free Association (1986-2003),America helped create viable
democratic institutions. Elections are free and lively, despite
imperfect voting mechanisms. However, Micronesian governance is
erratic and prone to opportunism and secret deal-making.




4. (C) Through various activities, the Peoples Republic of China
is pressing intensely for advantage. Luen Thai, which is a
quasi-state company of China within Tan Holdings, is currently
negotiating for fishing rights and fish processing facilities in
all four FSM states. The potential deal would in effect lock in
a Tan vertical monopoly to include fishing, fish processing,
transshipment, marketing and sales, according to one lawyer who
is engaged in confidential negotiations with the FSMNG, Luen
Thai, and legal representative of the states. On the table at
this time is a supposed draft proposal to grant fishing licenses
throughout the FSM's 200-mile EEZ. Fish licensing fees
estimated at $120 million would accrue exclusively to the FSMNG,
which the states resent. The draft agreement provides that all
fish would be offloaded in the FSM for processing in plants that
Luen Thai would construct.




5. (C) The deal depends upon FSMNG acceptance of a loan from
China's Export-Import Bank that reportedly now exceeds $25
million. The FSMNG would use these funds to refurbish
processing plants and purchase 11 ships, three of which could be
super long liners for frozen fish transshipment. The sale of
airplanes from China is also allegedly part of the proposal.

KOLONIA 00000123 002 OF 005


The plants would be constructed and/or refurbished entirely with
material imported from China, the lawyer said. Luen Thai has
offered to guarantee repayment of the loan from China based upon
its profits from this commercial venture. It is not clear how
significantly, if at all, the FSM states would profit. FSM
President Emanuel Mori and Secretary of Research and Development
Peter Christian, among other national leaders, are strong
supporters of this potential deal. Owing to the foreign loan
proposal, the package would need to be approved by the FSM
Congress. Action may take place at the January 2010
Congressional session.



ECONOMIC DECLINE




6. (SBU) The FSM is a mixed, roiling pot. On the one hand, the
FSM Telecommunications Corporation has advised that cable
television will soon reach the destitute State of Chuuk, where
over half the Micronesians in the FSM reside (approximately
53,000 people.) In the capital State of Pohnpei, Japan is
making steady progress on a project to extend the runway of the
international airport. The 800-foot extension will enable more
flights and larger aircraft. Domination of passenger
transportation by Continental Airlines' small fleet of 737
island hopping jets is likely to be challenged in the future.
The FSM will then need to stand up its own airport security
system to meet TSA and ICAO standards, rather than depend upon
Continental.




7. (SBU) Despite these and other signs of modernization, the FSM
economy continues to deteriorate. A recent Baseline National
Poverty Index estimates 29.9 of the FSM population falls below
this poverty measure. There is currently no radio station in
Chuuk that is capable of reaching that state's 42 outer islands
and atolls. State revenue is insufficient to supply a dwindling
Chuuk police force with mobile radios or to even operate a 911
emergency telephone number. Crime is rising. The small State
of Kosrae (population approximately 7,800) has failed to
generate sufficient income to cover the state's fourth quarter
operating expenses in FY 2009 and FY 2010, despite the
Governor's successful reform initiative two years ago to reduce
the state work force by over 100 positions. Pohnpei State has
made overtures to Taiwan to attract commercial assistance,
angering China. Pohnpei Governor John Ehsa is under
considerable pressure to deliver on a campaign promise to
provide lunches to high school students, which is currently
beyond his reach.




8. (U) A recent report of the Executive Board of the
International Monetary Fund (IMF),which conducted consultations
in the FSM in February 2009, indicates that economic output
declined by 3.6 per cent in 2007 and by an estimated 1 per cent
in FY 2008. The IMF report states, "As a result of problems
with disbursing grants under the Compact agreement with the
United States, rising commodity prices, and difficult business
environment, the economy has contracted for five years in a row
- one of the worst outturns among the Pacific nations."



SMARTER AID DELIVERY




9. (C) A key issue for U.S. interests in Micronesia is how to
make our ample Compact and other federal program assistance work
better to build capacity in the FSM and stimulate realistic
private sector activity. The aid is generous, totaling some
$140 million annually for a country with a population of
approximately 109,000. However, disbursement of Compact cash
grants to the states is delayed at the FSM National Government
level. Chuukese officials complained to the Ambassador that
they often do not get their first quarter installments until
spring, complicating implementation of projects and official
travel. Inefficiency and in-fighting within the FSMNG appear to
hamper the flow of allotments that the national government
receives regularly from the U.S. Department of the Interior
(DOI). The FSM Office of Statistics, Budgets, Overseas Aid and
Compact Management (SBOC),which is supposed to manage Compact
funds and policy, is unwieldy, inadequately staffed and at odds

KOLONIA 00000123 003 OF 005


with the FSM Department of Finance. Even when cash grants reach
the state level, frequently the Micronesians have difficulty
spending the money. Significant sums are returned to DOI as
"carryover funds" that are not absorbed.




10. (C) The challenge of U.S. aid delivery in Micronesia is
something we as a U.S. Government can and must fix.
Implementation and monitoring of grants and programs by DOI
personnel based in Honolulu and Washington occur outside the
authority of the Chief of Mission and without a cohesive policy
umbrella. Some Micronesian leaders are clearly using their DOI
connections to tie U.S. funds to their political purposes. As
one U.S. Government team, we could develop smarter and more
effective strategies. Secretary Clinton's Quadrennial Diplomacy
and Development Review appears to be a promising tool.




11. (SBU) Our most successful programs in the FSM do not place
too heavy a burden on the Micronesians at this stage of their
development. The FSM is a young and fragile nation, which
became self-governing only in 1986. The Embassy receives daily
reminders of a lack of internal professional capacity.
Micronesians generally lack the education and technological
skills to effectively use our taxpayers' money. However, they
respond enthusiastically to American leadership of programs and
projects.




12. (SBU) The visit of the USNS Mercy hospital ship in August
2008 elicited an outpouring of local volunteerism to help
Seabees paint a hospital in Chuuk, repair island schools and
organize inhabitants in three states for the delivery of primary
medical care. Even in torrential downpours, the Chuukese
recently joined U.S. Air Force personnel to stage a resoundingly
successful Humanitarian Assistance Rescue and Relief Team
exercise, which included validation of a new mobile hospital
concept. Federal Aviation Administration construction projects,
which are closely managed, have sprung up at all four FSM
international airports. The National Oceanic and Atmospheric
Administration expertly runs weather stations in three states,
providing regular training to Micronesian staff. The U.S.
Postal Service mentors and monitors Micronesian mail workers and
operations. Taking over lead responsibility for disaster
management from FEMA in 2009, USAID subcontractors have begun to
stockpile relief supplies and initiate practical, grassroots
responder training. By working side by side with the
Micronesians, these and other interagency representatives are
building pride and partnership.




13. (C) Problems arise when our federal requirements are too
sophisticated for the Micronesians, U.S. implementers are far
away, and a weak central government cannot manage basic
requirements. Compact infrastructure grants are a case in
point. Only four Micronesian engineers reportedly reside in the
nation. None of them is dedicated to Compact infrastructure.
While some projects have started, progress has been uneven. Yap
State officials complain strongly that their state has received
no projects over the first five years of the Amended Compact.
Serious Yapese leaders talk increasingly about prospects for
seceding from the FSM and turning for support to Palau and
Taiwan. Throughout the FSM, delays and lack of clarity about
the allocation of a backlog of some $130 million of Compact
infrastructure funds bear high, negative visibility and
political costs. An FSMNG Program Management Unit (PMU),which
is supposed to oversee Compact Infrastructure projects, comes
directly under the control of a busy President. Not only is
President Mori frequently away on travel; increasingly, he is
perceived as a scheming politician who is dedicated primarily to
his home state of Chuuk and prospects for reelection. The
wellbeing of the nation as a whole is rarely mentioned.
Distrust among the four states and the national government is
deepening. Pohnpei has initiated discussion of secession at its
current Constitutional Convention. Poor implementation of
Compact sector grants is one significant source of contention.




14. (C) The FSM states depend for their operations upon Compact
grant money, which covers approximately 65 percent of state
budget expenditures. Former President Joseph Urusemal (Yap),
who is now a national Senator, pleaded, "Please help us

KOLONIA 00000123 004 OF 005


accelerate implementation. We are now in the fifth year of
(Amended) Compact implementation and the situation is bad. I am
usually very patient, but I have no more patience." Like
President Mori and other FSM leaders in the national Congress
and state governments, Urusemal recommended that DOI open an
office in Pohnpei to improve communication, coordination, and
aid administration for the purpose stated in the Compact, which
is to benefit the Micronesian people. DOI has a complex and
difficult role to fulfill in a fragile nation, which cannot be
well accomplished by long distance, autonomous interventions.
Ambassador Hughes fully agrees about the need to assign
development specialists to Pohnpei, without necessarily
increasing overall costs, and to incorporate them as respected
colleagues and members of the Embassy Country Team. In the
meantime, the U.S. Embassy is the only mission in the FSM that
has no/no aid personnel - a shortcoming that compromises
oversight and accountability of substantial U.S. programs and
debilitates our efforts to coordinate donor assistance with
other embassies and organizations.



CHINA'S BIG FOOTPRINT




15. (C) The rising role of China in the FSM is apparent. China
has blanketed the FSM at every level with all-expense paid trips
that include daily emoluments. National leaders clearly enjoy
lavish multiple-city tours. Municipal leaders, clan chieftans,
students, and local police have in many cases accepted repeated
trips. A traditional leader of Netts municipality in Pohnpei,
where the new U.S. Embassy is located, told the Ambassador
during a farewell call that he and his wife each received $1,500
when they arrived in Beijing, with supplemental cash for
shopping every day. At a certain point, he said the Chinese
hosts asked to separate the men from their wives. At that
point, the traditional leader claimed he refused to cooperate
and he asked to go home.




16. (C) In Chuuk, five Chinese doctors recently arrived on a
Beijing government contract to serve two years in the state
hospital. Other doctors in the hospital complained to
Ambassador Hughes that the Chinese did not speak English or
practice the same type medicine. Instead, they said the
Chuukese were teaching the Chinese about western (Micronesian)
medicine. In Kosrae, Ambassador found that employees of Luen
Thai company were living in a house owned by Vice President Alik
Alik, who has publicly supported China's repression of the
Uighurs. Kosrae's Director of Education, an American who has
resided in the FSM for 17 years, commented, "For the first time,
I am truly concerned about Chinese intentions."



RECOMMENDATIONS




17. (C) Inauguration of the New Embassy Compound on August 26
sent a clear message about America's renewed commitment.
Micronesians recognized this reassurance and warmly welcomed the
fresh impetus. Over the long run, however, pride in sovereignty
and the ability to pick and choose for short-term gain may tilt
Micronesia in unpredictable directions. To maintain our
interests, an interagency team might consider some adjustments,
including:



--Department of Defense: Expand engagement, particularly of
humanitarian missions; reconstitute a roving Civic Action Team
(CAT) to identify maintenance projects, train Micronesians and
conduct local surveillance; assign a Defense representative to
the Embassy.



--Department of the Interior: Subcontract development
specialists to manage grants and programs in-country; channel a
portion of cash grants through non-governmental organizations;
facilitate streamlined disbursements to the FSM states; foster
accountability with less intrusion into internal budgets; join
the Embassy Country team as valued aid representatives, who can
expand coordination with other local stakeholders.

KOLONIA 00000123 005 OF 005





--Project Management Unit: Assign American construction
engineer/s, possibly the Army Corps of Engineers, to
knowledgeably manage our infrastructure projects; pay American
personnel from the infrastructure account; initiate a public
website to track all Compact Infrastructure funds and projects.



--Joint Economic Management Committee (JEMCO): Circulate
resolutions well in advance of this annual meeting, particularly
to enable the Micronesians to comprehend the contents and
implications for their budgets; include the U.S. Ambassador to
the FSM and the Micronesian Ambassador to the U.S. as full
voting members of this core Compact management mechanism, which
significantly affects bilateral policy.



CONCLUSION




18. (C) A tour of duty in the FSM inculcates respect for the
Micronesians, who are innately capable and eloquent people with
unique traditions and long, historical memories. They recognize
the benefits of close alignment with the U.S. Today,
Micronesians hunger for enhanced American engagement and
leadership. Although the nation has viable democratic
institutions, the Federation itself is under growing strain.
Each state is a separate entity with its own language, ethnicity
and culture. A national identity has not yet substantially
consolidated. Five years into the life of the Amended Compact,
which expires in 2024, the cumbersome, centralized way in which
we administer grants has proved problematic for a weak national
government. Our tone and techniques are perceived as penalizing
proud peoples and contributing to radicalization of the four
states. Influential FSM leaders exploit separate tracks of
communication.




19. (C) We need to decide whether to deal with the FSM as a
neocolonial Trusteeship remnant or a sovereign nation. The role
of the U.S. Ambassador must be strengthened as the executive
manager of all U.S. Government activities in country.
Otherwise, Micronesia will smile, feign compliance and drift
toward the highest bidder, quite possibly at an accelerated
pace. A better option is to build partnerships for progress,
including with China, Japan and Australia. This emerging
Pacific island nation merits a modest review and some fresh
approaches and adjustments.
HUGHES