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How Much is Enough? US Aid and Free Association

By Francis X. Hezel, SJ

Compact

Not long ago a prominent FSM leader requested $2 million from the US Congress to check a widely publicized epidemic of leprosy in the islands. Why not, officials may have thought. The equally well-publicized cholera epidemic that hit Truk two years ago brought in $1.7 million in special US funds for medical assistance and construction of sanitation facilities. A shortage of medical supplies in one of the local hospitals prompts new appeals for special funds. So do the large budget deficits in Palau that were brought on by pay hikes for government employees following a general strike. Requests for special assistance from the US, over and above the annual grant for government operations, have been multiplying in recent years from every quarter of Micronesia.

In the face of their money problems, the newly formed governments of Micronesia have again taken up the fight to retain US Federal Programs during Free Association. At issue here is the more than $20 million that Palau, FSM and the Marshalls receive in Federal Program funds each year under the Trusteeship. In addition to all this, some influential members of the US Congress are proposing that at the onset of Free Association the new Micronesian states be kept under Interior Department, which traditionally overseas domestic areas, rather than under State Department, which usually manages foreign relations. The irony of this is that two of the three island governments have already begun calling themselves "republics," while the third has long seen itself as moving in the same direction.

Just when everyone thought that the political status question was all but settled, it appears to be reopened once again. After years of negotiations with the US, the governments of Palau, FSM and the Marshalls have virtually settled on a Free Association with the US, a status that offers these island governments a combination of political sovereignty over their own affairs and a guaranteed subsidy from the US for the duration of the Compact. All of this was designed to insure the support that both US and Micronesian governments felt to be during the hard years of transition towards increasing political autonomy, perhaps even eventual independence.

The economic provisions of the Compact itself were drawn up in such a way as to further the related goals of economic self-reliance and political autonomy. Forty percent of the general grant money provided by the US during the term of the Compact was to go into a capital account and be used for development purposes. The original intention was to provide an adequate amount of capital that could be invested in economic development projects or fund capital improvement projects that might stimulate productivity in the Micronesian economies. The hope was that in time these island nations would generate all or most of the money that they required to support their own governments.

It was with the same purpose in mind that US Federal Programs, which had grown rapidly in number and total dollar amount during the 1970s, were to be cut back. At first there was an expressed desire on the part of the US to drop all Federal Program assistance during the period of the Compact. When Micronesian negotiators balked at this, however, a compromise measure was written into the Compact: a total of $12 million in block grants was to be divided among the three governments in partial compensation for the loss of the Federal Programs under the Compact. Everyone recognized that this would entail a drop from the $20 million funding level in 1983, but this was consonant with the overall goal of reducing Micronesia's dependence on US aid, even if perhaps not eliminating it entirely, during the years of Free Association.

The old vision that inspired the Compact is still there, but it is growing dimmer with each new financial crisis that the Micronesian governments face. Self-reliance and the political autonomy that it brings seems like an ever more remote goal when the leaders of the new governments sit down to figure out how to pay the bills. The ideals of yesterday fade before the harsh reality of today's needs -- or at least what are perceived as needs.

Today the Micronesian governments, and virtually all the people they represent, are fighting to preserve US Federal Programs under the Compact. They argue that these programs provide indispensable services for the island peoples in that they fund bilingual education, pay for teacher aides, fund hypertension and other public health programs, and provide lunches for school children, among other things. The programs do indeed furnish public services, some of which are very useful, but they also provide wage employment for hundreds of Micronesians. If these programs were stopped, the considerable number of jobs lost might well be more socially significant than the mere loss of the public services.

For years now the government has been by far the largest employer in Micronesia, and government has come to be seen as something of an employment agency today. This view persists despite the ritual declaration, found repeatedly in economic development reports, that the size and cost of government must be trimmed if there is to be any real incentive for building up private sector employment. Much of the hesitation in implementing sound development policies revolves on this point. In the eyes of most Micronesians today the security of government jobs is far preferable to the risks of venturing into private business, particularly in the areas of resource development that are most needed. Then, too, political leaders would face the unwelcome task of laying off government employees, a measure that remains extremely difficult for anyone to do in small island societies. In addition to the political consequences of such layoffs, there can also be legal obstructions, as some of the governors have found when they have tried to fire government employees.

Most Micronesians have come to identify prosperity with an increase in government jobs, despite the admonitions of economic planners to the contrary. Anything that allows the creation of more salary positions, especially in view of the influx of great numbers of educated young people into the job market, has an almost irresistible appeal to Micronesian leaders today. This is the case even when there is such a surfeit of employees in a department that the delivery of services may actually be impaired by their numbers, as could be true in some of the local education departments today following massive hirings of Chapter One teachers and classroom aides.

If the vision that inspired the Compact is to be preserved, government employment must be cut back despite all the difficulties. The seed money for development that the Compact provides together with the guarantee that the Micronesian states will control their own land and sea resources is not sufficient to assure economic development. Motivation is the other essential but often overlooked factor in the formula for development. People must want to utilize their resources in such to increase the productivity of their new nation. Yet how can one expect talented and enterprising people to go into such chancy ventures when they are offered the secure alternative of a government job? An increase in government employment brings a corresponding decline in incentive to develop industry, besides raising the cost of government operations. The overall effect would be to undermine the genuine economic development that was originally seen as the major economic goal of the years of Free Association.

For those who would stand to lose their jobs if Federal Programs were abolished under the Compact, there are alternatives to a return to a subsistence life. The hope, of course, is that they would contribute to the development of a healthy private sector within Micronesia, but the Compact also provides for free access to the US and job opportunities there. Given these alternatives, a reduction in government employment would not really be an economic disaster for those laid off, although it could represent a political problem for the government leaders who had to implement such a measure.

The problem that the Micronesian governments face today goes well beyond the question of whether or not they should retain US Federal Programs in the future. At heart, it is the critical question of how they see themselves vis-a-vis the US under Free Association and beyond. To what extent will they regard themselves as ultimately responsible for their own political and economic destiny?

In the years since the island states of Micronesia have attained self-government, they have repeatedly turned to the US for financial support in time of crisis. The cholera and leprosy epidemic in different parts of the FSM have led to requests for considerable sums of money to control diseases. The threat of pay less paydays as a result of overspending have prompted further emergency appeals for aid from the US. The pattern of requesting special grants to meet such needs is only intensified by the general despair at finding funds in the local operating budgets for non-personnel budget items such as medicine, textbooks, heavy equipment and the like. There seems to be common agreement that if a critical need arises, it can be handled more effectively, and certainly more painlessly, by requesting supplementary assistance from the US than by reprogramming current operational funds.

Yet easy recourse to the US in time of crisis is inconsistent with the goals that FSM, Palau and the Marshalls have set for themselves during Free Association. The known availability of such funds can only encourage overspending on government operations, something that is a strong enough temptation as it is in addition to putting Micronesians in the demeaning position of running to their former guardian everytime something goes wrong and asking for more money. But perhaps the most serious hazard in this practice is that it will retard the development of fiscal responsibility in the new governments. Government leaders and the people they serve can too easily escape the responsibility of prioritizing their needs and deciding what can and can't be done. As long as the island states can call on special funds whenever need arises, they will have no incentive to order their own spending procedures, keep a tight hand on the purse strings, and demand effective use of the money they spend.

The most critical need throughout Micronesia today is not to have the hospitals painted, or the wards fixed, or medical supplies on hand for the next outbreak of influenza, or teachers paid when the next payday rolls around. The most critical right now is to ensure that all these things will be taken care of in the years ahead on a regular basis. This is only to say that the growth of fiscal responsibility, with the know-how and foresight that it implies, is actually the most urgent need today. Otherwise, we are deemed to repeat these minor financial crises on a regular basis. Somehow or other Micronesian administrators themselves will have to work out ways of coping with the chronic lack of supplies that seems to afflict every government office. If this requires dropping employees to cut down the payroll so that there will be funds for nonpersonnel costs, then they will also have to figure out ways of doing this as well. The fiscal day of reckoning, which was meant to occur at the beginning of self-government some years ago, has already been postponed because of extraordinary forms of assistance. It will not serve the interests of the new island governments to further delay this responsibility throughout the fifteen-year period of Free Association. Unwillingness of the US to relinquish this responsibility would not only be patronizing but subvert the very meaning of self-government.

This is not to deny that the financial problems Micronesian leaders face are real ones, even if some of them may be the result of inexperience in the new governments themselves. Because of increasing operational costs, the FSM has recently reached the point where funds under the Compact will fall short of what is now being spent on administration and government services. Palau and the Marshalls will undoubtedly reach the same point soon, if they have not done so already. In the event that Micronesian and American leaders agree that such a shortfall of funds will seriously impair the performance of the new programs, then the block grant dollar figures should be increased to offset the difference. The principle of the block grant -- appropriating a set amount of money to be used as the governments feel necessary -- is a good one and should not be abandoned in favor of Federal Programs out of mere panic at rising government expenses.

What is at issue throughout is not just fidelity to the original spirit of the Compact of Free Association, but the quality of life that it was meant to guarantee for Micronesians. The material welfare of the island people is an important part of the quality of life, but it is not the whole of it. Quality of life also encompasses such things as integrity, self-respect, and a responsibility for one's own affairs. The kind of development envisioned in the Compact was to help people realize these deeply human needs even as it promoted a higher material standard of living. Today, as we are tempted to narrow our perspective and look only to the amount of dollars and the number of jobs they will buy for our people, we would do well to recall some of the other factors in the quality of life that are more easily forgotten. As we do, we shall also recapture something of the original ideals of the Compact.


Marianas Variety, 22 March 1985 and 29 March 1985. Also published in: Marshall Islands Journal, 12 April 1985; Journal of Pacific Society, No. 18, October 1985; Pacifica, No. 12, April 1985.

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