WENO, Chuuk — The State of Chuuk has been in deep financial trouble for two years in a row. According to an interim report by a newly established task force, Chuuk is at least $25.7 million in debt. It’s technically insolvent—that is, totally unable to pay debts. A complete financial failure, such as the one in 1995-96, could be repeated.
The task force, a Chuuk and Federated States of Micronesia Joint Financial Stability Program established in February, has three members from both the state and the national governments. The Economic Management Policy Advisory Team is also helping, the report said.
The Joint FSP was set up to study, make recommendations and develop disciplined management to avoid a total financial collapse for Chuuk. The report said state officials miscalculated and downplayed the seriousness of the problem and dealt with it as “temporary and solvable.”
Causes of the financial distress were identified last year and officially reported to the governor and both house of the state legislature. “The state was advised to take a series of corrective measures,” said the report.
Evidently, nothing happened.
Instead, the measures were shrugged off because there was going to be an increase in funding before the new Compact with the U.S. According to the report, fiscal year 2001 was a terrible year in terms of fiscal discipline. The state needed to exercise discipline but failed.
“It was understood that the state would have the opportunity to take longer-term corrective action,” the report said. “However, most of these recommendations were never implemented.”
Two months ago, financial failure was evident and now the government faces a severe crisis, said the report. Currently, the crisis demands that the government implements corrective measures.
The Joint FSP also reviewed the successful work of the Public Sector Reform Oversight Committee established in Feb. 1997, which helped the state recover. As a result, a similar approach is recommended but with a more formal statutory entity.
