Aid and sovereignty

A debate over United States donor aid to the Marshall Islands and Federated States of Micronesia is intensifying as island leaders chafe at controls being exerted by the United States government. The President of the FSM and the Foreign Minister of the Marshall Islands frame their criticism as a sovereignty issue: We’re independent countries—don’t dictate aid terms to us. Yet this position, as attractive as it may seem, overlooks fiscal and political developments in the United States. The U.S. government’s Interior Department administers the millions of dollars provided under 20-year funding agreements that are part of Compacts of Free Association with the two north Pacific nations. Interior is under increasing pressure from the U.S. Congress and the Government Accountability Office (GAO) to show that the funding is producing measurable improvements in education and health and being managed accountably.

During the recently concluded Pacific Islands Forum, FSM President Emmanuel Mori told me the FSM’s relationship with the United States ‘has been very good. But the implementation level is a thorn.’ For the first time in nearly 30 years of Compact relations, the U.S. and Marshall Islands have been unable to reach agreement on a Compact budget allocation for the new fiscal year (that starts October 1), which has put the country’s entire national budget process in limbo. The U.S. is putting conditions on Compact funding, but the Marshall Islands does not want funds to be subject to any restrictions. ‘Full Compact grant allocations should be an annual allocation and disbursed with no conditions,’ Foreign Minister Phillip Muller said in August. The United States, said Mori, ‘still treats us like one of the territories. My honest view is it is a conflict to follow established rules that don’t necessarily respect our sovereignty.’

The first Compacts were implemented for the Marshall Islands and FSM in 1986. While they included broad goals for increasing economic self-reliance for these islands of the former United Nations Trust Territory, the initial Compacts were largely a political arrangement—one that ended territorial status and helped underwrite newly established governments in Pohnpei and Majuro. Politically, they were a success; economically, less so. Throughout the first 15 years of funding, there was little emphasis on ‘performance’ and ‘accountability’ by the U.S. government. As the funding agreement came up for renegotiation in 1999-2000, a GAO team conducted its first serious audit of the $2.6 billion the U.S. provided FSM and the Marshall Islands from 1986-2001. The title of the GAO report, ‘Better Accountability Needed Over U.S. Assistance to Micronesia and the Marshall Islands,’ explains the result of the audit. It had the immediate impact of motivating U.S. State Department negotiators to ratchet up accountability and performance requirements in the second Compact funding agreement that went into force in 2003. Among the key elements of the current Compacts’ funding arrangements are the Joint Economic Management Committee (JEMCO) for the FSM and the Joint Economic and Financial Accountability Committee (JEMFAC) for Marshall Islands. The U.S. maintains a three-to-two majority on these committees that are mandated to meet annually to review and approve Compact funding allocations.

Many political leaders in both island countries cut their teeth during the free-spending days of the original Compact when government jobs were viewed as a way to share the aid wealth. Today, the Interior Department is increasingly demanding that the governments show they are planning for the future—the funding agreement ends in 2023—and that Compact funding is producing improvements in health and education, the focus of the funding. The problem from the U.S. government’s perspective is that the national governments are not addressing how to deal with their heavy dependence on the annual U.S. Compact grants that decline each year until they end in 2023, and that most of their performance indicators are unreliable.

An ongoing lack of performance by many government personnel is compounding development challenges at a time of when action is urgently needed. The lack of national leadership on these problems is evident in the chronically poor management at the Ministry of Health in Majuro, which spends over 20 percent of the country’s budget each year—much of it from Compact and other U.S. government sources. Do government leaders not care that day-to-day service in many government departments is poor despite huge infusions of donor aid, or is it that they don’t know how to fix problems and engage government personnel to perform, or at a minimum show up to work 40 hours a week?

Either way, the inability of national governments in the Marshall Islands and FSM to greatly improve progress in health and education isn’t just a donor issue. It goes to the heart of national development goals and their implementation. Despite donor assistance accounting for more than 60 percent of their annual budgets, and most of it focused in health, education and poverty-reduction areas, these two nations are on track to meet just two of the eight Millennium Development Goals—in contrast to Palau, their neighbor and Compact of Free Association partner with the U.S., which is on track to implement seven of the eight. Both countries’ arguments about sovereignty would be bolstered by performance. But to date, in the public sector, it is largely absent. For example, the GAO says only one of 14 education indicators was ‘capable of demonstrating progress,’ while in health the majority of indicators were found to be unreliable as a way to measure performance.

The GAO, which reports directly to the U.S. Congress, in its latest report issued Friday last week, recommended that the Interior Department take all necessary steps to ensure that the Marshall Islands and FSM complete satisfactory plans to address annual decrements in Compact funds, produce reliable indicator data used to track progress in education and health, and address all single audit findings in a timely manner. At the annual JEMFAC and JEMCO meetings last month with the Marshall Islands and FSM, respectively, the U.S. Interior Department listed these as priority requirements that had to be acted on and supported use of U.S. funding to do so.

While island leadership is increasingly vocal against what it sees as over-reaching U.S. oversight of Compact funding, a better measure of sovereignty would be improved government performance and a pace of implementation in health and education commensurate with the level of donor assistance. This is what local populations urgently need to help develop solutions to such problems as non-communicable diseases that have risen to the point that in 2012 President Loeak declared NCDs to be a national emergency.