Dispelling what she called a “dangerous” belief that the U.S. will extend more aid when the current Compact of Free Association grant package ends in 2023, U.S. Ambassador Martha Campbell said, “I can say with all certainty that there is no intention on the part of anyone anywhere in the government of the U.S. to extend Compact funding past 2023.”
The U.S. has funded the Marshall Islands and other islands in Micronesia since it won the area from Japan at the end of World War II. The U.S. and Marshall Islands are seven years into a 20-year aid package that when combined with an earlier 15-year deal will have provided the Marshall Islands with about $4 billion by 2023.
Speaking at a College of the Marshall Islands forum at the weekend — “Compact 2023: What next?” — the country’s Foreign Minister John Silk said that while grant provisions end, the overall agreement between the two nations — which gives the U.S. long-term use of Kwajalein Atoll for a missile testing base and Marshall Islanders visa-free access to the United States — does not expire, meaning islanders will continue to enjoy certain benefits of the long-term special relationship with the U.S.
A key feature of the Compact aimed at weaning this aid-dependent nation off U.S. grants is a trust fund that the U.S. is capitalizing and which now stands at about $100 million. Although “the viability and sustainability of the trust fund remains an issue, the Marshall Islands will be much better off in 2023 than in 2003 when the first Compact simply ended,” Silk said.
But with the U.S. government now paying the salaries of 90 percent of the more than 1,000 public school teachers and administrators, issues of sustainability are surfacing with great force. The U.S. has called on leaders to come up with a plan to deal with U.S. grants that drop by $500,000 annually, while a domestic presidential advisory panel has called for spending cut backs of up to $9 million a year so that more can be invested into the trust fund in anticipation of 2023. The International Monetary Fund warned at the end of 2009 that if the Marshall Islands doesn’t begin adding $9 million a year to its trust fund, interest available will equal only half of $32 million in U.S. grants in 2023, causing a financial crisis. But little action has been forthcoming from the government to address its increasingly unsustainable financial situation.
Finance Minister Jack Ading said he is proposing to invest an additional $2 million into the trust fund for fiscal year 2011, which starts October 1.
“We should have done it yesterday,” he said. Officials say on some paydays so far this year, the government has been barely able to come up with payroll, confirming the fiscal problems.
Marshall Islands Chamber of Commerce president Stephen Philip expressed concern that “increasing crime and unemployment, a downturn in business and tourism development and U.S. funding coming to an end in 2023 could add up to economic and social problems for the Marshall Islands.”
Unemployment is officially pegged at more than 30 percent, with young people facing a rate double this, according to the government’s planning office.
Campbell said that over the 20-year life of the Compact, the U.S. will invest $235 million into the government’s trust fund. But, she said, everyone agrees additional investment is needed.
With the U.S. providing about 60 percent of the national budget of $140 million this year, money is not the problem, Cambpell said. “There are many areas for which just more funding is not enough,” Campbell said. “It won’t get the Marshall Islands to where it needs to be by 2023. Every Marshallese citizen should be urging their elected officials to address these key areas.”
She said a Comprehensive Adjustment Program report issued to Cabinet late last year made numerous recommendations for improving the economic outlook of the country, she said. “This CAP was prepared by Marshallese for Marshallese,” Campbell said. “They did the math, looked at the trends of spending and the expectations of income, and made a clear case that the measures they were recommending are absolutely critical and must be taken now — understanding full well that the measures they are recommending are far from easy.” The report recommended fixing problems in “state owned enterprises” that are dependent on millions of dollars in government subsidies, addressing issues in the public service whose payroll accounts for about 30 percent of the national budget, and supporting private sector activity.
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