Panuelo: FSM clinched a $7B deal
Updated: Feb 2
By Mar-Vic Cagurangan
How much will it cost the United States to meet the needs of the Federated States of Micronesia, and in return, to satisfy what it needs from the Pacific nation?
Leveraging the FSM’s strategic consequence to regional order, President David Panuelo put his proposal on the table: $7 billion over 20 years, and more afterward.
“That is what we have accomplished in Washington D.C. at the end of January,
achieving an estimated combined $7 billion in programs and resources from Sector Grants and Trust Fund gains," Panuelo said after his series of meetings with White House officials in Washington, D.C. during the last week of January
While a final agreement has yet to be reached, Panuelo expressed confidence that “the topline funding for the (Compact of Free Association) is secured for the purposes of the U.S. president’s budget submission to the U.S. Congress.”
The U.S. funding and program provisions under Title II of the compact are set to expire on Sept. 30, 2023.
“Given the narrowing window on this, I must take decisive action for our people,” Panuelo said.
“This is not a trivial matter; the U.S. President’s budget is submitted in early February, and not having these figures secured would mean delaying the FSM’s movement on compact-related issues for another year at best,” the FSM leader said.
Panuelo met with Kurt Campbell, National Security Council coordinator for the Indo-Pacific, Ambassador Joseph Y. Yun, special presidential envoy for compact negotiations, and Ambassador Carmen G. Cantor, assistant secretary for Insular and International Affairs.
The FSM president said his Washington trip yielded a pledge worth a combined total of $7 billion in fresh grants, as well as extended programs and additional resources, which will all depend on congressional review and subsequent action.
The new proposed package is more than double the total amount received by the FSM over the past 35 years. According to Government Accountability Office’s February 2022 report, the U.S. Department of the Interior was projected to have provided the FSM with a total of $3.7 billion in compact grants from 1987 to 2023.
Panuelo said he has secured the U.S. negotiating team’s “concurrence to seek to request from the U.S. Congress $140 million per year in Sector Grant assistance, or a total of $2.8 billion over a 20-year period.”
He also said the White House negotiators have agreed to request a mandatory appropriation for annual installments of $250 million to be deposited into the FSM Trust Fund for two years. If approved, the first installment would begin in fiscal 2024, and a total of $500 million would have been invested in the first two years of a new agreement.
“This will help ensure the FSM reaches its financial goals for 2044 and beyond, and the Trust Fund is conservatively projected to reach a total value of $4 billion or above by 2044,” Panuelo said.
“We have seen other Pacific islands and other countries enjoy being wealthy today only to become poor tomorrow—and the impact that has on families and communities,” Panuelo said. “It is in our strategic interest to ensure that, no matter what the future brings, we can collectively, and always, count on the Trust Fund to be a source of revenue for our people.”
Besides the Sector Grant assistance and the Trust Fund, Panuelo said the U.S. has also agreed to continue the current provisions under the Federal Programs and Services Agreement.
“While it is beyond the scope of this release to quantify this assistance, it is the view of the FSM government’s executive branch that this assistance is arguably as significant, if not more significant, than annual the Sector Grant assistance,” a press release from the FSM government said
Panuelo anticipates the negotiation to be completed soon and a final agreement to be signed before the end of his term on May 11.
“Focusing on finishing this important work will remain my priority so that the next administration—regardless of who they are—will know that the compact is secured for our nation’s prosperity. This is about taking actions today for our nation’s prosperity tomorrow," he added.
The new economic package proposals reflected upgrades from a tentative deal Panuleo announced earlier. In his state of the nation address, Panuelo said the FSM would receive $140 million in annual sector grant assistance, representing more than $50 million per year over current assistance levels.
“I am willing to put it all on the line—and to risk my political career by taking bold action, focusing on my duty and the long-term impacts to our people —in order to secure a deal that is fundamentally in our nation’s best interests, and the best interests of our citizens,” the FSM leader said.
The FSM, along with two other freely associated states— Palau and the Marshall Islands—plays a crucial role in deterring China’s incursion into the region.
Strengthening its ties with the FSM is particularly crucial to Washington given the Pacific nation’s cozy relationship with Beijing.
The most salient aspect of the compact is the United States’ “strategic denial rights” over the FSM’s surrounding waters and airspace to keep China at bay.
The U.S. is particularly interested in Yap, which will emerge as a training site for the military.
China also has an interest in Yap, where it proposed to build a megaresort project which has since been shelved.