August 13, 2005

Good morning, and thank you for the opportunity to address this Committee. Before I begin, let me clarify that I am delivering this message not in my capacity as Chairman of JEMCO but in my capacity as head of the Office of Insular Affairs, manager of the Compact grants. I address this message both to JEMCO and to all of the FSM officials who are my colleagues in the administration of the Compact. I realize that this distinction of roles can be confusing, but my role of grants manager gives me some unique perspectives that JEMCO and my colleagues from the FSM may find helpful. I hope that no one gets confused when I refer to the members of JEMCO as "you", even though one of the "yous" is "me".

Members of JEMCO, we are at a crossroads, and the ultimate success or failure of this grand experiment that we call "Compact II" will depend upon the results of today's meeting. As the U.S. Government Accountability Office has pointed out, and as we all already know, we face real challenges. Both the U.S. and the FSM have done their best to rise up to the level of performance that Compact II demands of us. But to date, our best-I'm referring to both countries here-has not been good enough to put the FSM firmly on the path to a secure and prosperous future. For the sake of all of the people of the FSM who are depending on the Compact implementation teams from both countries, our best will simply have to get better.

Some of my fellow Pacific Islanders have observed that while we used to be able to just live for today, times have changed and we need to focus more on the future. If we don't worry about the future, we may not have a future to worry about. Eighteen years may seem like a long time for the FSM economy to grow sufficiently to survive without Compact grants. It is actually an alarmingly short period of time, given the distance that we have to travel and the institutions and policies that would have to change in order to make the journey possible.

The FSM's economy, which is based largely upon government jobs and other government expenditures funded by outside grants, is unsustainable. In order to build a stronger, more secure future, Compact grants should be used to help generate private sector economic development and local tax revenue, rather than as a substitute for private sector development and local tax revenue. Public sector expenditures, including payroll, should be used to ensure that the people as a whole have a better life tomorrow, rather than merely to provide a livelihood for some today. What this really means is that in order for Compact II to succeed, attitudes and institutions that were shaped by the Trust Territory economy will have to be retooled for the future. Some have claimed that Compact II is a step back towards the days of the Trust Territory. I believe that the opposite is true: Compact II creates an urgent need to for both the U.S. and the FSM to leave all vestiges of the Trust Territory mentality behind once and for all.

We commend the FSM for recognizing the need to embrace a high-growth scenario. Choosing a scenario of high growth is easy. What's difficult is making the hard decisions and short-term sacrifices that will actually lead to economic growth. We stand ready to help in any way that we can, especially through our partnership with you in the stewardship of Compact funds.

The initial years of Compact II have been a learning experience for all of us, with successes and disappointments. I am pleased that OIA's grants management team has developed an excellent relationship with our FSM colleagues. If I may say so, I think that we've assembled a great team at OIA. Many people on this team have devoted their entire careers to Micronesia. We have members of this team who have literally married into Micronesian culture, and who have children who are at least as Micronesian as they are American. Each and every member of our team knows these islands quite well and cares deeply about them. For what it's worth, I care deeply about these islands.

Every member of this team deeply values the special relationship between the U.S. and the FSM. Every member of this team deeply appreciates the service of Staff Sgt. Steven Bayow of Yap and Sgt. Skipper Soram of Pohnpei, who made the ultimate sacrifice in Iraq, and of Sgt. Hilario Bermanis and all of the other sons and daughters of Micronesia who are putting their lives on the line to defend freedom. Every member of this team deeply respects the sovereignty of the Federated States of Micronesia.

We have tried to be frank about the problems that we have found, because every strong partnership requires frankness. But we have never pointed fingers or laid blame. Our criticisms have been directed at problems, not people.

In that spirit, let me highlight an issue that, from my perspective as grants manager, can have a profound impact on the workings of JEMCO and the implementation of the Compact. I commend JEMCO for its ability to reach consensus most of the time. But why has JEMCO sometimes failed to reach consensus when both nations want good schools, good health and a strong economy? The reasons are complex, but I offer this for your consideration. It takes time to reach a consensus, and the process as it is currently managed gives us very little time. When OIA doesn't get required materials in a timely fashion, we can't spot important issues until the last minute. We then can't alert JEMCO members about important issues until the last minute, which may leave JEMCO members with insufficient time to resolve any differences that may arise among them. While it is very important for JEMCO to reach consensus, JEMCO cannot afford to be paralyzed when it fails to do so. Since JEMCO is responsible for allocating the annual Compact grants, its failure to act in a timely fashion could interrupt the flow of grant funds.

So who is to blame for JEMCO's occasional failure to reach consensus? Is the FSM guilty of being dilatory? Are the U.S. members guilty of railroading? In both cases, I say the answer is "no". The true culprit here is a lack of capacity. The GAO identified insufficient capacity on the U.S. side as a major challenge, and insufficient capacity on the FSM side is a major challenge as well. On the U.S. side, we are going to make an effort to improve our capacity. For the FSM, the Compact gives us the tools to make necessary investments in capacity. In my view, JEMCO has an absolute obligation to ensure that the FSM has the capacity to generate good information so that we can measure the success of our Compact expenditures. The FSM also needs to bolster its capacity to monitor Compact spending, to ensure that funds are reaching their intended beneficiaries. By developing the capacity to generate necessary information in a timely fashion, we will all have enough time to spot issues early on and, more importantly, JEMCO members will have enough time to thoroughly discuss and resolve any differences that may arise. I realize that it is painful in the short run to divert funds from programs to capacity building, but without the capacity to measure the results of our expenditures, we will have no way to determine which of our expenditures are wise and which are a waste of precious resources. If we allocate a little less money to programs and a little more money to true capacity building for performance measurement and oversight, we will be able to accomplish much more with a little less.

After this meeting, we must come together to find ways to improve the process so that it can more effectively serve the needs of the Micronesian people. We cannot allow process to become the enemy of progress.

Another issue that challenged us this year was the situation that we found in Chuuk, resulting in OIA's decision to withhold funds for the school nutrition program. OIA took this action in order to protect and preserve precious resources so that they could eventually be used for the benefit of the people of Micronesia. It became clear to us that money intended to feed the schoolchildren of Chuuk was not reaching those children. Investigations which have been going on for several months now hopefully will eventually determine where the money was actually going. But for OIA to keep releasing funds, month after month, when we knew that money wasn't reaching the children, would have been a dereliction of our duty as grants manager.

If we let money out the door and it gets improperly diverted, that money would probably be gone forever and would never be available to help schoolchildren. The money we withhold, on the other hand, will be available to benefit the people of the FSM as soon as we can establish reasonable safeguards to protect Compact funds there. Establishing those safeguards is one of the most important tasks that JEMCO faces today. The people of the FSM are waiting for you, and they deserve nothing less than your prompt action.

Finally, it has been brought to my attention that some of our Micronesian colleagues take offense when I speak about the U.S. need to protect the U.S. taxpayer investment in the FSM. Perhaps an explanation would be helpful. I noted before that the members of the U.S. grants management team care very much about the wellbeing of the FSM and its people. In my view, however, it would be very condescending of us to suggest that we care more about the FSM than its official leaders do, or that we have a better grasp of what's good for the FSM. It is the job of the FSM's official leaders to protect the interests of the FSM. We respect the fact that this is your role, and would never presume to usurp it from you. I therefore prefer to express my role not as the guardian of the FSM's interests, which would be presumptuous, but as the protector of the U.S. taxpayer investment. Those are the interests that I'm paid to protect, and I hope you can respect that. The good news is that we all want the same things: good schools, good health and good opportunity for the people of the FSM. It is the job of FSM officials to measure the success of the Compact on behalf of the people of the FSM, and it is the job of their U.S. colleagues to measure that success from the perspective of the U.S. taxpayer. Each side has to use its own judgment in making these determinations, although the Americans and Micronesians involved in this process must of course consult one another extensively as partners to try to get onto the same page. Hopefully, if the process allows enough time, JEMCO will always reach consensus. The bottom line, however, is that we all must recognize and respect each one another's roles in this partnership.

It has been suggested that the phrase "U.S. taxpayer investment" somehow suggests that the FSM is receiving welfare, rather than a quid pro quo in a partnership. That is not what it means at all. We recognize full well all of the benefits that the U.S. has received, and continues to receive, under the Compact. The bargain of Compact II, however, is that what the U.S. gives in exchange for these benefits is not free money for no particular purpose, but rather funds that are expected to have tangible and measurable results in terms of improved health, education and economic opportunity for the people of the FSM. Compact II requires the U.S. to share responsibility for ensuring that Compact funds actually reach their intended recipients and achieve their intended results.

We believe that Compact II's accountability requirements greatly benefit the people of the FSM. It would be very difficult for the FSM, which is still developing its public sector capacity, to shoulder the entire burden of ensuring that the people of the FSM receive all of the benefits that they are supposed to receive under the Compact. Under Compact II, the FSM doesn't have to assume this burden on its own: It is the joint responsibility of the FSM and the U.S. Our active involvement can only increase the likelihood that Compact funds will achieve strong, positive results for the people of Micronesia.

I understand that some have concerns about the term "investment". Perhaps this is because people associate this word with the private sector and, unfortunately, there is deep suspicion of the private sector throughout the Pacific. Let me be clear: An investment is simply an expenditure that we expect to generate a positive result. "Investment" is a very important word because when one invests, one is giving up something now so that the future will be better. The result that we're expecting from our investment-and by "we" I will presume to speak for both countries-is a good, sustainable quality of life for the people of Micronesia. The benefits of the investment go to the people of Micronesia. We call it an "investment" because we're not simply writing a check and walking away. We're sticking around to help ensure that life actually improves for Micronesians in the way our two nations intend.

Some have complained that Compact II's accountability requirements violate the FSM's sovereignty. I would argue that the FSM's ability to use outside grant funds without accountability is not a measure of its national sovereignty. That is a false sovereignty. The FSM's true sovereignty will be enhanced by its ability to develop its private sector economy and generate local tax revenue, and hence reduce its reliance on outside grants. Compact II, if implemented properly, will help the FSM to achieve a much greater level of sovereignty over its affairs.

Although Compact II contemplates the active involvement of the U.S. in managing these grants, the U.S. role should be limited. As a general rule, the U.S. should not usurp the prerogative of the FSM's leaders to decide priorities for the FSM. In my view, there are two important exceptions where the U.S. should assert its view, even if it's contrary to that of the FSM's leaders: First, we must oppose investments of Compact funds that we believe are outside the letter and spirit of the Compact, and second, we must act to protect Compact investments and maximize their chances of success. We recognize that the FSM's leaders also are responsible for pursuing these objectives. In cases where we have a difference of opinion, we must work to bridge the gap. If we are unable to come to agreement in a timely fashion, however, then we are bound to act according to our best judgment just as you are bound to act according to yours.

The record will show that every time the U.S. has asserted its will under Compact II, it has been triggered by a necessity, in our best judgment, to defend the letter and spirit of the Compact or to protect Compact investments. It is not surprising that some differences of opinion have surfaced in the early years of Compact II. We need time to work through some difficult issues. The process will get better, and we all will get better at it, over time.

And we had better get better, because the people of Micronesia may one day demand of us the accountability to which they are entitled. It is fitting that JEMCO is meeting today, on the first day of school. When I rode in from my hotel this morning, it was wonderful to see all of the schoolchildren in Kapinga Village walking to school in their bright green uniforms. But when parents who are sending their children off to school today learn that Compact education grants to FSM state governments have more than doubled since 2000, and that the U.S. is spending over $1,000 per year for each student in Micronesia, some parents on some islands may demand to know why their children's schools are in decrepit condition, why their children don't have proper textbooks, why their children's schools are not properly staffed, why their children are not receiving anything close to $1,000 worth of education. When they learn that Compact health grants to the FSM state governments have more than doubled since 2000, some people may demand to know why their dispensaries aren't properly staffed or stocked. If the people of Micronesia start asking these questions, if they demand to know where all that money went, what will we tell them? We should welcome the day when the Micronesian people demand that we answer difficult questions. It will help us all to become better stewards of Compact funds. Those difficult questions need to be directed to all of us and the governments that we represent. We are in this together.

So let us continue to work together as partners to make our working relationship even stronger. But let us remember that while our working relationship is very important, at the end of the day it will not be the strength or weakness of our personal relationships with one another that ultimately could cause the FSM to shortchange its future and fail to capitalize on the great promise of Compact II. It will be our collective failure to protect our common investment in the future of the FSM, our failure to recognize that time is our enemy, and that we have a very narrow window to rescue the future. It will be our collective failure to act with vision and courage, to stand up to political pressure, to stand up for change, to stand up for the people. Long after we all have moved on from our current positions, future generations of Micronesians will live with the consequences of our actions and of our failures to act. The obligation of accountability under the Compact runs not from one government to another, but from those of us from both governments who are responsible for administering the Compact to the people whose future depends on our wisdom and on our will to do the right thing. Members of JEMCO, as you do your work today inside of this room, never forget your solemn obligations to the people outside of this room, especially the young people who will inherit the future that you will help to create for them through your actions today. And let us take comfort in the fact that everyone in the room today has a common vision of that future: a future for the FSM in which the people enjoy good health, good education and abundant economic opportunity.

Members of JEMCO, you have much to accomplish today. I wish you the best of luck.