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The cost of an enduring partnership

By Joyce McClure

As Compact of Free Association negotiations grind on toward the Sept. 30 expiration of its economic provisions, Federated States of Micronesia President David Panuelo said in his recent state of the nation address that an additional $50 million a year will be added to the sector grant funding.

That means the FSM will receive a total of $140 million per year for education, health, infrastructure, the environment, economic development and other designated purposes.

The agreement is not, as of this writing, anything more than a handshake between the COFA negotiators as they prepare to draft a memorandum of understanding; but let’s look at what’s on the negotiating table for the FSM.

COFA will continue into perpetuity until both parties mutually agree to part ways. But let’s face it, COFA is not about the FSM’s self-sufficiency or economic development. It’s about the U.S. having sole defense and other operating rights to this vast region. At play on the financial roulette table is the price they will pay for those rights to keep China at bay.

Indeed, President Panuelo announced in his speech that residents should “expect an increase in training exercises taking place in and/or around our ocean territory.” The exercises, he added, “will be increasing in frequency over the next several years.”

A strategic assessment of the compacts for FSM, Palau and RMI published in September 2020 by the International Center for Advocates Against Discrimination (ICAAD) states: “While the U.S. position in the region has always been driven by military interests, empty and exploitative promises of self-sufficiency have resulted in dependency and neglect.”

During the time of the trust territory in 1963, Anthony Solomon, a member of President John F. Kennedy’s staff, argued that by increasing economic assistance, loyalty from these Pacific islands would be guaranteed as a result of economic dependency.

“The strategy has been successful in that the economic assistance provided has not been enough to support self-sufficiency and was likely never intended to do so,” notes the ICAAD report. The lack of economic development during the first compact was blamed on a lack of accountability and oversight by the FAS governments.

The Department of the Interior, the ICAAD report continues, initially maintained “the talking point that there would not be any economic assistance” after 2023.

However, in July 2019, an interagency Senate hearing with the Department of the Interior, Department of State and Department of Defense “revealed the crux of U.S. interests and the risk of ending economic assistance.”

The sleeping giant suddenly awakened like Sleeping Beauty after years of benign neglect when the stealthy infiltration of China could no longer be ignored.

Political buy-in for COFA is high at the top levels of the FSM government, the ICAAD report notes, since reliance on national financial assistance for public projects is often used by members of Congress for local projects to help them get re-elected. Indeed, on top of their base salary, they each receive an annual stipend of $150,000 to pay for their offices, staff, community requests and obligations.

However, knowledge about the compact and how it works is minimal among citizens of the FSM. It is not taught in schools.

Despite lip service paid by the U.S. for self-sufficiency over the years, it is deemed in Washington’s best interest to sustain dependency and, thus, underdevelopment, the ICAAD asserts.

The 2003 amendment to the compact also created barriers when it instituted quarterly performance reports and exhaustive application processes overseen by JEMCO. With a significant lack of human resources, these requirements are debilitating, according to ICAAD, resulting in the FSM looking to the World Bank, Asian Development Bank, China, Taiwan and Japan for economic assistance with fewer, if any, strings attached.

Recently, President Panuelo told the U.S. to stop micromanaging and treat the FSM like a partner, not a charity. If the compact funding for economic development were to stop, the U.S. would be “retiring their small responsibility to compensate for the manufactured underdevelopment of the islands,” asserts ICAAD. It will also open the door further to China, which has been watching, waiting and methodically giving easy money to FSM for more than three decades.

Funding will not cease given China’s very real geopolitical threat, but there may be a rearranging of the deck chairs when the final agreement is announced. Hopefully, the negotiation includes a serious and meaningful discussion about economic development and self-sufficiency with a realistic action plan.

But then again, maybe the FSM is perfectly happy to remain dependent on the U.S. If that’s the case, then they have the valuable bargaining chip of their strategically situated 1 million square miles of open ocean.


Grants and programs on the negotiating table


· All sector grants ($61 million for education, health, infrastructure, reporting & accountability, public sector capacity building, environment, private sector development + $17.6 million additional for infrastructure projects)

· Annual audit of COFA grants (Up to $500,000)

· Supplemental Education grant ($12.23 million)

· Pell Grants

· National Weather Service

· Telecommunications services

· FDIC insurance for banks

· US Postal Service

· DOT FAA civilian aviation safety services and related programs (New agreements required)

· Judicial training grants

· U.S.-Forum Fisheries Agency Economic Assistance

· Pacific American Fund (August 2025)


· Rural Utilities Service grants and loans

Remains eligible:

· Special Education grants

· FEMA disaster relief and USAID disaster resilience and preparedness

· Department of Agriculture grants

· Department of Health & Human Services grants

· Institute of Museum & Library Services grants

· Historic Preservation Fund grants-in-aid

· National Science Foundation grants to improve science, technology, inventory & math education

· DOT/FAA airport improvement program

Source: U.S. Government Accountability Office’s February 2022 report titled “Compacts of Free Association: Implications of Planned Ending of Some U.S. Economic Assistance."

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