Compacts of Free Association: Micronesia and the Marshall Islands Face Challenges in Planning for Sustainability, Measuring Progress, and Ensuring Accountability
GAO-07-163
Published: Dec 15, 2006. Publicly Released: Dec 15, 2006.
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Highlights
In 2003, the United States signed Compacts of Free Association with the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI), amending a 1986 compact with the countries. The amended compacts provide the countries with a combined total of $3.6 billion from 2004 to 2023, with the annual grants declining gradually. The assistance, targeting six sectors, is aimed at assisting the countries' efforts to promote economic advancement and budgetary self-reliance. The Department of the Interior (Interior) administers and oversees the assistance. Complying with a legislative requirement, GAO examined, for fiscal years 2004 through 2006, (1) the FSM's and the RMI's use of compact funds, (2) their efforts to assess progress toward development goals, (3) their monitoring of sector grants and accountability for compact funds, and (4) Interior's administrative oversight of the assistance. GAO visited the FSM and the RMI; reviewed reports; and interviewed officials from the FSM, RMI, and U.S. governments.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Interior | To improve FSM grant administration, planning, and measurement of progress toward compact goals, and to ensure oversight, monitoring, and accountability for FSM compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of Joint Economic Management Committee (JEMCO), to coordinate with other U.S. agencies on the committee in working with the FSM national government to establish plans for sector spending and investment by the FSM national and state governments to minimize any adverse consequence of reduced funding resulting from the annual decrement or partial inflation adjustment. |
As a result of our recommendation, the Department of the Interior, through the framework of the Joint Economic Management Committee, coordinated with U.S. agencies on the committee in working with the Federated States of Micronesia (FSM) national government to establish a decrement strategy focused on minimizing the adverse consequences of reduced funding. More specifically, the FSM national government published its Long Term Fiscal and Economic Framework (LTFEF), which is meant to serve as a reference tool for budgetary and economic planners, as resources continue to decline as a result of reductions in real Compact grant funding and increasing costs, such as rising public sector wages and price increases of goods and services. However, JEMCO members challenged the viability of the FSM national government's decrement strategy, as described in the LTFEF. For example, JEMCO officials raised concerns about the FSM national government's strategy of diluting health and education programs, rather than eliminating certain programs in these sectors, as Compact funds decline. JEMCO officials also expressed concerns about the willingness of the FSM national government to implement spending reductions described in the LTFEF in future budgets.
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| Department of the Interior | To improve FSM grant administration, planning, and measurement of progress toward compact goals, and to ensure oversight, monitoring, and accountability for FSM compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of JEMCO, to coordinate with other U.S. agencies on the committee in working with the FSM national government to evaluate the impact of the current FSM distribution between states and sectors on the ability of the nation to meet national goals or deliver services. |
The Department of the Interior, through the JEMCO framework, has yet to coordinate with other U.S. agencies on the committee and the Federated States of Micronesia (FSM) national government to evaluate the impact of the current FSM distribution between states and sectors on the ability of the FSM to meet national goals or deliver services.
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| Department of the Interior | To improve FSM grant administration, planning, and measurement of progress toward compact goals, and to ensure oversight, monitoring, and accountability for FSM compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of JEMCO, to coordinate with other U.S. agencies on the committee in working with the FSM national government to fully develop the mechanism for measuring sector grant performance and collect complete baseline data to track progress toward development goals. |
As a result of the recommendation, the Department of the Interior, through the JEMCO framework has coordinated with other U.S. agencies on the committee in working with the Federated States of Micronesia (FSM) national government to develop a mechanism for measuring sector grant performance and collect complete baseline data to track progress. According to Interior, the FSM national government has made improvements in identifying baseline indicators for tracking progress toward development goals, however, the data are unverified and remain inconsistent.
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| Department of the Interior | To improve FSM grant administration, planning, and measurement of progress toward compact goals, and to ensure oversight, monitoring, and accountability for FSM compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of JEMCO, to coordinate with other U.S. agencies on the committee in working with the FSM national government to ensure that the quarterly performance reports contain reliable and verified program and financial information for use as a monitoring tool by both the FSM and the U.S. governments. |
In response to our recommendation, the Department of the Interior has coordinated through the JEMCO framework with other U.S. agencies on the committee in working with Federated States of Micronesia (FSM) national government. However, FSM's quarterly performance reports continue to be problematic i.e. they are not a useful tool for either the FSM or the USG to monitor sector performance. According to the Department of the Interior, the FSM's quarterly reports remain unreliable and unverifiable.
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| Department of the Interior | To improve RMI grant administration, planning, and measurement of progress toward compact goals, and to ensure oversight, monitoring, and accountability for RMI compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of Joint Economic Management and Financial Accountability Committee (JEMFAC), in coordination with other U.S. agencies on the committee in working with the RMI government to establish plans for sector spending and investment that minimize any adverse consequence of reduced funding resulting from the annual decrement or partial inflation adjustment. |
As a result of our recommendation, the Department of the Interior, through the framework of the Joint Economic Management Financial and Accountability Committee, coordinated with U.S. agencies on the committee in working with the Republic of the Marshall Islands (RMI) national government to establish a decrement strategy minimizing the adverse consequences of reduced funding. In response to these efforts, the RMI national government published its Medium Term Budget and Investment Framework (MTBIF) which identifies several measures to mitigate the impact of reduced compact funding and partial inflation adjustments. The measures include increasing revenues by encouraging private sector growth and decreasing government expenditures. However, at the JEMFAC Mid-Year Conference in March 2011, JEMFAC members advised RMI national government to extend its decrement strategy beyond the medium-term of 5 years in preparation for the elimination of Compact funds.
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| Department of the Interior | To improve RMI grant administration, planning, and measurement of progress toward compact goals, and to ensure oversight, monitoring, and accountability for RMI compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of JEMFAC, in coordination with other U.S. agencies on the committee in working with the RMI government to fully develop the mechanism for measuring sector grant performance and collect complete baseline data to track progress toward development goals. |
As a result of the recommendation, the Department of the Interior, through the JEMFAC framework has coordinated with other U.S. agencies on the committee in working with the Republic of the Marshall Islands (RMI) national government to develop a mechanism for measuring sector grant performance and collect complete baseline data to track progress. However, Interior officials have concerns about the reliability of the data, and the extent to which RMI national government and United States government officials are using the data to assess grant performance.
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| Department of the Interior | To improve RMI grant administration, planning, and measurement of progress toward compact goals, and to ensure oversight, monitoring, and accountability for RMI compact expenditures, the Secretary of the Interior should direct the Deputy Assistant Secretary for Insular Affairs, as Chairman of JEMFAC, in coordination with other U.S. agencies on the committee in working with the RMI government to ensure that the quarterly performance reports contain reliable and verified program and financial information for use as a monitoring tool by the RMI and the U.S. governments. |
In response to our recommendation, the Department of the Interior has coordinated through the JEMFAC framework with other U.S. agencies on the committee in working with Republic of the Marshall Islands (RMI) national government. However, the RMI's quarterly performance reports continue to be problematic i.e. they are not a useful tool for either the RMI or the USG to monitor sector performance. According to the Department of the Interior, the RMI's reports provide little if any updated information on a quarterly basis.
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