By Giff Johnson
For Variety

MAJURO — The temporary borrowing by the Marshall Islands of $500,000 in United States funding to pay for a shipment of fuel to keep the lights on in Majuro violated a grant agreement controlling use of the funds, causing alarm bells to ring in Washington, D.C. The Interior Department responded late last week by issuing a letter warning the Marshall Islands that the U.S. was fully aware of the improper action by the Ministry of Finance, according to U.S. officials.
But the Interior Department did not suspend regular payments to the Marshall Islands as it has in the islands of Chuuk and Kosrae, two of the four states in neighboring Federated States of Micronesia whose funding from the U.S. is also governed by a Compact of Free Association with strict accountability requirements.
“The U.S. Department of the Interior suspended all Compact payments to the FSM State of Kosrae, because of inadequate internal controls and poor accountability governing the use of Compact funds by Kosrae State,” the U.S. Embassy in the Federated States of Micronesia announced on Wednesday. Kosrae improperly used $1.5 million in U.S. funds and funding was temporarily halted by the U.S. last month, the embassy said. The U.S. cut off funding to Chuuk late last year following what it said was improper use of more than $1 million.
A continuing cash crisis in the Marshall Islands prompted national government officials to “borrow” $500,000 in Compact funds designated for other purposes to help meet a payment deadline last month to purchase two million gallons of diesel from S. Korea-based supplier SK Networks for the power plant in Majuro, the capital. The funds were repaid to the Compact account next day, according to government officials.
A national government official said that the Marshall Islands needed to temporarily use available Compact funds to prevent the capital from being blacked out for lack of fuel. The Compact funds were repaid 24 hours later from a loan provided by the government’s national development bank.
Tom Bussanich, the director of budgeting and grant management at Interior’s Insular Affairs Office in Washington, wrote Minister of Finance Brenson Wase last week telling him that the use of Compact funding for a Marshalls Energy Company fuel purchase was a violation of the Compact fiscal procedures agreement.
Bussanich informed Wase that the U.S. is aware of the inappropriate use of Compact funds by the Marshall Islands and he asked for a full explanation.
Funding to the Marshall Islands and Federated States of Micronesia through the 20-year Compact agreement is tightly controlled by the U.S. and designated for specific sectors, with a focus on health and education.
The $500,000 borrowed from Compact funds covered a shortfall for a $1.8 million payment needed to secure delivery of diesel by SK Networks, the fuel supplier for the Marshalls Energy Company, the main utility company in Majuro. The SK tanker is expected to arrive Majuro on Friday or Saturday this week.
Although the money was only borrowed for 24-hours and paid back into the Compact fund account, one U.S. official said it was a violation nonetheless and the U.S. wants to ensure that the infraction doesn’t set a precedent for similar action in the future.
For Kosrae, Compact funding disbursements will resume shortly. “We understand the importance of these funds to the people of Kosrae,” said Nikolao Pula, Director of the Department of the Interior’s Office of Insular Affairs. “We appreciate the close cooperation of the FSM national government in developing improved financial management systems for Kosrae that are allowing us to resume Compact payments.”