Foreign Assistance: U.S. Funds to Two Micronesian Nations Had Little Impact on Economic Development
NSIAD-00-216
Published: Sep 21, 2000. Publicly Released: Sep 21, 2000.
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Highlights
Pursuant to a congressional request, GAO reviewed foreign assistance, focusing on the: (1) use of the Compact of Free Association funding by the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI) between fiscal years 1987 and 1998; (2) progress both nations have made in advancing economic self-sufficiency; (3) role of Compact funds in supporting economic progress; and (4) extent of accountability by the two nations and the United States over Compact expenditures.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of State | As negotiations to determine the extent and nature of future assistance to FSM and RMI continue, the Secretary of State, in consultation with Congress, should develop guidelines regarding: (1) U.S. policy objectives for assistance; (2) the level, duration, and composition of U.S. assistance; and (3) the agency responsible for U.S. oversight. |
The Department of State took action to respond directly to GAO's recommendation. The renegotiated, amended Compacts, which were approved by Congress in 2003, and went into effect on June 25, 2004 for the Federated States of Micronesia, and May 1, 2004 for the Republic of the Marshall Islands, provide for (1) specific, yearly levels of assistance for each country (decreasing over time), (2) an assistance period of 20 years for each country, and (3) priorities (such as health, education, environment, and public infrastructure) for grant assistance.
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| Department of State | The Secretary of State should direct the Special Negotiator for the Compact of Free Association to negotiate Compact provisions that provide greater control and effectiveness of expenditures and that include requiring that funds be provided primarily through specific grants that facilitate the ability of the U.S. to: (1) direct the money to mutually agreed-upon priority areas and projects; (2) control and monitor expenditures through grant requirements such as performance indicators, technical and financial planning, incremental funding, and evaluation; and (3) provide technical assistance for planning and implementing the use of funds. | GAO recommended (Foreign Assistance: U.S. Funds to Two Micronesian Nations Had Little Impact on Economic Development, GAO/NSIAD-00-216, September 22, 2000) that the U.S. Department of State Negotiator for the Compact of Free Association negotiate new Compact provisions with the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI) that would require that future U.S. funds to the two countries be provided primarily through specific grants that would facilitate the ability of the United States to (1) direct the money to mutually agreed-upon priority areas and projects and (2) control and monitor expenditures through grant requirements such as performance...
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| Department of State | The Secretary of State should direct the Special Negotiator for the Compact of Free Association to negotiate Compact provisions that provide greater control and effectiveness of expenditures and that include more specifically defining the eligible uses of capital account funds. | GAO recommended (Foreign Assistance: U.S. Funds to Two Micronesian Nations Had Little Impact on Economic Development, GAO/NSIAD-00-216, September 22, 2000) that the U.S. Department of State Negotiator for the Compact of Free Association negotiate new Compact provisions with the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI) that would include specific eligible uses of future capital account funds provided to the two countries by the United States. The Department of State, in close cooperation with the Department of the Interior, took subsequent action to respond directly to GAO's recommendation. In the renegotiated, amended Compacts, which went into...
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| Department of State | The Secretary of State should direct the Special Negotiator for the Compact of Free Association to negotiate Compact provisions that provide greater control and effectiveness of expenditures and that include requiring that funds, either Compact or from local revenues, be set aside for maintenance of capital projects. | GAO recommended (Foreign Assistance: U.S. Funds to Two Micronesian Nations Had Little Impact on Economic Development, GAO/NSIAD-00-216, September 22, 2000) that the U.S. Department of State Negotiator for the Compact of Free Associations negotiate new Compact provisions with the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI) that would require that funds (either Compact or local revenues) be set aside for maintenance of future FSM and RMI capital projects. The Department of State, in close cooperation with the Department of the Interior, took subsequent action to respond directly to GAO's recommendation. In the renegotiated, amended Compacts, which...
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| Department of State | The Secretary of State should direct the Special Negotiator for the Compact of Free Association to negotiate Compact provisions that provide greater control and effectiveness of expenditures and that include requiring that consultations that lead to a consensus take place between the U.S. and FSM or RMI governments before either FSM or RMI issue any Compact revenue-backed bonds. | The Department of State took action to respond directly to GAO's recommendation. In a key subsidiary agreement to the amended Compacts, which went into effect on June 25, 2004 for the Federated States of Micronesia and May 1, 2004 for the Republic of the Marshall Islands, there is a requirement that these two governments shall not issue negotiable or transferable obligations evidencing indebtedness or encumbrance of funds received under the Compact. The agreement further states that on a case-by-case basis, as part of the grant formulation process, the joint economic management committees may consider requests by these two governments for commitment of Compact funds beyond the current...
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| Department of State | To achieve greater oversight over expenditures, the Secretary of State should direct the Special Negotiator for the Compact of Free Association to negotiate Compact provisions requiring, in addition to annual financial statement data, expanded annual reporting requirements for FSM and RMI, including a requirement to provide data and information on specific expenditures in mutually determined priority areas on an annual and historic basis presented in a format that is easily understandable to U.S. policymakers and officials responsible for providing and monitoring Compact assistance. | GAO recommended (Foreign Assistance: U.S. Funds to Two Micronesian Nations Had Little Impact on Economic Development, GAO/NSIAD-00-216, September 22, 2000) that the U.S. Department of State Negotiator for the Compact of Free Association negotiate new Compact provisions with the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI) that would require that annual reporting requirements for the FSM and the RMI be expanded to include data and information on specific expenditures in mutually determined priority areas. The Department of State, in close cooperation with the Department of the Interior, took subsequent action to respond directly to GAO's...
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| Department of State | To achieve greater oversight over expenditures, the Secretary of State should direct the Special Negotiator for the Compact of Free Association to negotiate Compact provisions ensuring an expanded agenda for the annual consultations that will include discussions of: (1) progress toward mutually agreed-upon objectives; (2) questioned costs and management weaknesses identified in financial and program audits; and (3) the role of U.S. program assistance in further development. | GAO recommended (Foreign Assistance: U.S. Funds to Two Micronesian Nations Had Little Impact on Economic Development, GAO/NSIAD-00-216, September 22, 2000) that the U.S. Department of State Negotiator for the Compact of Free Association negotiate new Compact provisions with the Federated States of Micronesia and the Republic of the Marshall Islands that would require an expanded agenda for future annual consultations with the two countries that would include discussions of (1) progress toward mutually agreed-upon objectives, (2) problems identified in audits, and (3) the role of U.S. program assistance in furthering development. The Department of State, in close cooperation with the...
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| Department of State | To secure an improved U.S. ability to enforce compliance with Compact spending and oversight requirements, the Secretary of State should direct the Special Negotiator for the Compact of Free Association to exclude a "full faith and credit" provision from any future economic assistance agreement and to include provisions that will provide that funds can be withheld from FMS and RMI for noncompliance with spending and oversight requirements. | GAO recommended (Foreign Assistance: U.S. Funds to Two Micronesian Countries Had Little Impact on Economic Development, GAO/NSIAD-00-216, September 22, 2000) that the U.S. Department of State Negotiator for the Compact of Free Association exclude a "full faith and credit" provision from any future U.S. economic assistance agreement with the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI), and include provisions that would provide that U.S. funds could be withheld from the FSM or the RMI for noncompliance with spending and oversight requirements. The Department of State, in close cooperation with the Department of the Interior, took subsequent action to...
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| Department of the Interior | In order to strengthen accountability and ensure the effective use of the remaining FSM and RMI Compact funds, the Secretary of the Interior should direct the Director of the Office of Insular Affairs to make increased use of existing Compact oversight provisions. The Secretary of the Interior needs to reassess the level of resources being directed to this area and ensure that appropriate agency resources be used to monitor Compact assistance. In particular, the Department of the Interior should review annual independent audits as well as the annual reports prepared by FSM and RMI in order to identify, for example, questioned costs, management weaknesses, or spending that does not support development goals. The Director should ensure that required annual meetings are held with both countries and include the participation of other U.S. agencies, as appropriate, in order to resolve the issues identified previously. |
No action has yet been taken.
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| Department of the Interior | In the event Interior retains the responsibility for providing and monitoring any additional Compact assistance as a result of the current negotiations, in order to strengthen accountability over expenditures, the Secretary of the Interior should direct the Director of the Office of Insular Affairs to implement a system to centrally monitor program assistance. Further, the Secretary of the Interior should report annually to Congress on Compact and program expenditures and how they are specifically advancing economic progress in FSM and RMI, as well as on compliance with oversight responsibilities for all three countries. The Secretary of the Interior should also ensure that appropriate resources, including the number and skills of staff, are dedicated to monitoring U.S. assistance to both nations. | As formulated in the amended Compacts' 2003 implementing legislation (P.L. 108-188), this recommendation was achieved. This legislation requires that the President report to the Congress on an annual basis regarding economic progress achieved in the Federated States of Micronesia and the Republic of the Marshall Islands as a result of the Compact and program assistance. The Department of the Interior is projected to be the agency that will prepare this report for the input and approval of an interagency group prior to reporting to the Congress. Furthermore, the Department of the Interior has taken action to implement this recommendation by creating and filling eight new staff positions...
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