My theory: Our Micronesia islands nations can not be economically viable: reason: small population

As we approach 2023, we're told to be more economically viable and independent; so we don't depended so much on the US financial and other assistance. While these goals are good and heady, nothing in the last 30 to 40 years that the 3 independent FAS COFA nations have done bring them closer to the utopian economic viability.

While there many reasons as cited for lack of economic development, I think it boils down to the fact that all the islands don't have sufficient number of people (population) that are needed to create a critical mass--that encourages, creates, and implement economic development activities.

I am sure there are real economist and theorists out there who may have written about this issue, I think it'll be good for our Micronesian thinkers to address the issue of small population as a main factor for our economic development's malaise.

Each island nation probably needs about 200,000 to 500,000 people in order to create a critical mass. With that size of population, people will work to move agriculture and aquaculture production along--just to feed the population; but which can also lead to exports. More people means more local people will be trained to provide expertise in business management, production, exports, domestic markets, experts in health, education, etc., etc.

Once we agree that this is the cause of our problem--and it's not something that we can do anything about at this late into the game, our political leaders can develop negotiation positions with the US that might lead to a more hybrid commonwealth or hybrid territory status of the US.

We can probably use the 1 billion Trust Fund money to only buy US Treasury bonds--30 years, 20 years, 10 years. Stay away from stocks. Reduce expenses from buying/selling of investments.

Then, in turn, give this back to the US Treasury. And negotiate a pact where the US will provide on an annual basis, an appropriation, of certain level of funds that will be continue to be stable and be availabe into the foreseable future.

I don't know if this makes sense to all. But I am just saying that the sooner we accept the fact that our small island nations cannot be economically viable--until each nation reaches about 200,000 to 500,000 people--until we come to that realization, we will continue to suffer. After all, the US Department of Interior's Insular Affairs is treating us like territories and commonwealth anyways with their current administrative oversight--not like foreign and indepenent countries that we are supposed to be.
Just some thoughts on this day.


  • So this provides one of the possible vehicles to move our relationship with the US a bit closer than it is now. A "hybrid-commonwealth" or "hybrid-territory" of the US. It's proposed that we receive a guaranteed annual appropriation for years to come--for the duration of the Compacts (which can be indefinite) in exchange for the COFA nations to buy US Government debt such as US Bonds and Treasuries.

    And all the revenue that come from the annual coupon payment of the interest for these long term US Government debt will be provided back to the US to offset its government debt; so it can reduce its public debt with China. At the same time, it will be used to off-set the US Congressional appropriation for the FAS countries.

    If a Trust Fund of 1 Billion US dollar could be used to buy 1 billion worth of US long-term bonds, at coupon rate of 4 percent, that could translate to millions annually. I'll stop because my calculator cannot do billion of dollars calculation but I think it's a point worth considering.

    Even though Trump's economy is expected to cause rise in equity values, there is in the future going to be downturn -- that is just how investments, in equities, work.
    It will be difficult to operate any of the FAS governments if the income from the Trust Fund were to fluctuate wildly--if half of the investments of the Trust Fund were in equities. I am saying let's put 100% in US Bonds; and let the US government be responsible to collect the coupon income. And in turn, the US government provides us an annual appropriation of funds thru the Congress. With this legislative vehicle, we might be able to insert additional requests, especially for infrastructure maintenance, here and there.

    Just some wishful theoretical thinking.
  • It does not mean we turn over our Trust Fund's principal to US--say, $1.5 billion for the FSM. But we agree to turn over the annual steady interest income stream (coupon payment) for long-term as well as short-term US Government Bonds to the US Treasury in exchange for annual Congressional appropriations.

    What we need is consistent amount of appropriated Funds regardless of the US economy, condition of equity markets--US or international, etc. At the end of the trial period, say, 30 years from now, we will get our Trust Funds back with some inflationary factors built into it as the US Government Bonds' maturity dates come up.
  • I call it "hybrid-commonwealth" or "hybrid-territory of US" in order to distinguish this sort of tweaked arrangement from the regular commonwealth such as CNMI; or territory such as in case of Guam. We certainly want to continue to have our political relationship (Freely-Associated States status) with the US but at the same time continue to still honor our independent state status.

    With such an independent state status, we can continue to be members of international bodies such as the UN; and also participates in international programs and funding schemes such as WHO, SPC, World Bank, etc. So we'll be a tad closer to the US but still be at arms length relationship with the US.

    I think it's possible but it depends on the leadership and people of each country to decide. It's my understanding that some in the Chuuk's independence movement, for example, want a closer relationship with the US such as the Commonwealth or Territory. This suggested "hybrid-commonwealth" or "hybrid-territory" might provide an opening for some discussion that might address the Chuuk's cry for something. Again, just wishful thinking. Again, just some theoretical--what ifs scenario--for discussions.
  • Another benefit of this approach--use the Billion dollars Trust Fund to purchase only long-term US Government Bonds (debt)--is to provide almost 100% certainty of a certain level of funding for years and years without the fear of wild fluctuation of the investment income.

    The annual guaranteed amount of income from the coupon payout would provide a steady, predictable, budgetable (?), revenue for the governments to expect--year to year--regardless of internal political changes of leadership or mismanagement of funds as invested in other traditional investment schemes.

    Currently, in any portfolio for endowments or other "trust" funds, they would invest about 40% to 60% in fixed income--which could be bonds from the US Government or high grade bonds from reliable companies such as Microsoft, Apple and the like.

    So I am saying, let's put 100% (instead of 40%-60%) to the US Long-term Government Bond--just so that we can have 100% certainty of income stream, at minimum, from the annual coupon payouts, for years and years to come.

    Will this stream of income be enough to fund the governments. I say, it is possible.

    1. This steady income stream from the US Government Bonds will be divided, in the case of the FSM, to the national government and the state governments--based on the division formula now. Of course, this is subject to negotiation.

    2. It should provide a steady revenue for probably 50 to 70% of the government's operating revenue;

    3. The governments can either reduce their budgets to make this revenue 100% of the budgets; or the governments can identify other revenue sources to make up the remaining differences.

    4. This other revenue sources could include:

    a) other trust funds that are being set-up by the governments;

    b) additional appropriations to be requested from the US Congress as per the hybrid-Commonwealth or hybrid-Territory of the US which is yet to be brought forth and negotiated;E

    c) additional funding from international organizations such as USAID, WHO, European Union, Aids from China or Taiwan, competitive grants that can be sought to support programs in health, education, conservation, climate change, etc., etc.

    Just some wishful theoretical thinking and assumptions on what might be possible.

  • So I think the new political relationship, as proposed here for consideration, should be "US Commonwealth of Freely Associated States of Micronesia"--USCFASM for short. Or, something like that.

    I think such acronym will entail most of the ideas and concepts as have been expressed in these posts above. Let's put more meat onto it; and also develop pathways on how to move it through the US as well as the Micronesian political processes. I think it's doable. Just a wishful, theoretical thinking.
  • Maybe a better name would be: "US Commonwealth of FAS-FSM; or "US Commonwealth of FAS-ROP" and US Commonwealth of FAS-RMI". It speaks to the independence of the FAS countries; and also speak to the hope of benefiting from being a hybrid-commonwealth of the US.

    "Commonwealth" seems to suggest a more developed entity as compared to a "Territory".

    I am thinking of the fact that many Pacific nations that were once under the British Empire; and had become independent--such as Fiji, India, etc., are referred to as commonwealth--in relationship to the current British Government/Nation.

    So the "US Commonwealth of FAS---" should denote the endearing shared value such as democratic principles, etc. as well as denote a unique political relationship and self-government development history under the US Trusteeship oversight from after the World War II until the FAS countries became independent from the US.

  • So this will be my last post on this subject matter--until somebody comes up with something else for consideration. In short, in order to implement this new political hybrid relationship between the FAS and the US, the following are to be noted:

    1. Compacts will remain pretty much intact. No need to renegotiate the Compact: only the provisions or Titles dealing with funding and maybe a couple of additional request here and there;

    2. COFAs' new provision is inserted to reflect the new modified political relationship: no longer just FAS but the new "Commonwealth of FAS with US"-- or something similar;

    3. DOI's Insular Affairs will continue to oversee things--to be the link between the FAS Commonwealth and the US Federal Government--as it is doing now. I think this arrangement had been planned anyways because the US must oversee the management of the compacts' Trust Funds-- RMI, FSM and ROP--into the future;

    4. The only major difference is that the new FAS Commonwealth nations will agree to "invest" the entire Compact Trust Fund to purchase Long Term US Government Bond--30 years, 20 years, etc.

    5. These countries will also agree to put the Bonds' annual coupon payoff to a specifically designated US Treasury account--that will be specifically used to "off-set" the US Congressional appropriation of US funds for operation of the FAS Commonwealth nations--in the same amount or a little bit higher as requested below.

    5. The only request from the new FAS Commonwealth nations is that the US Congress will provide another 1% above the coupon rate--and this 1% will be the only new US Funding to be added to the annual appropriation. So if the 40 years US Government Bond were to yield annual 4% coupon payment, the US would agree to put another 1% from its own funds-so that the annual appropriation will be 5% of the total Trust Fund income.

    6. So by this arrangement, the US Congress appropriation will not take funds from the other US Government priorities except the 1% add-on. Or, if the Congress would agree to tag on additional 1% to make 2% amount higher than the annual coupon payout income, then, that would be much better. After all, once we become a Commonwealth, why would the US not be willing to invest on us more?

    7. In DC Embassies, there will be the usual Ambassador but there will also be a position that will be designated to deal with domestic relationship between the US and the new FAS Commonwealth. Who knows, that second position might be similar to the "representatives" such as those from Guam, CNMI, A. Samoa, etc.

    So I'll stop here for now. Much has been said. Whether the US or our FAS would agree on this new hybrid Commonwealth relationship will be up to the negotiators. We want to be closer to the US but also still enjoy the benefits of being independent states. I think this is the trend. Now that we've been with the US for over 30 years and many Micronesians have become US citizens by birth or have moved to permanently live the US, the mood of the voters of 2018 are not longer the same as the mood of the voters of 30 years or so ago.

    At that time, we were charting a new course; we wanted to be close to the US but was afraid; thus, the FAS concept was adopted. Now, we've live with the US and have become more comfortable with the decisions of our forefathers and the gambling that was made at that time. If the voters were to be asked today, I believe they would like to be moved a little be more closer to the US. We need the US protection in this increasingly dangerous world--especially in this side of the world where major political players could quash the small island states into oblivion.

    Here's wishing for a good future political relationship with the US; where our Trust Fund will provide a constant annual predictable income thru the US Congressional legislative vehicle; where we will not be afraid of investment scams; and electronic unauthorized fund transfers similar to what happened in RMI's account last year--since the investments will be in solid rock US Government Bonds. So that is it; all theoretical; all speculations; but reflective of real desire for a stable and productive and eventually economically self-sufficient small island nations in the future--in 10, 20 or 50 years from now.
  • intresting.. Btw Marc, last time i read about it, Commonwealth was one of the options USA gave during the negotiation stages of the micronesian islands with the USA back in days of the TTPI, you think USA will accept Commonwealth combine with Free Association statue?> just for clarification. thanks
  • I don't know because this is a different time; and the US State Department people who worked on the negotiations back then have changed. And our government leaders also have all been changed as the old guards have either retired or passed away. But a good question is also whether today's Micronesian leaders would be willing to consider it. This is the reason perhaps we don't talk about a full commonwealth similar to CNMI but a hybrid or modified version to suit the current situation. Just speculation at this time.
  • visafree, I know there are Micronesian experts on the current inner working of DC who can shed lights on these options:--experts on the current political climate; the legislative strategies/processes; inner working of DOI and the Office of Insular Affairs; the Wall Street; the investments especially strategies of Trust Funds as different from private funds, etc. I hope some of these experts might find time to make some comments on these ideas as proposed or noted in these posts. But here are some additional information that might have relevance;

    1. I think DOI's Insular Affairs will find the new arrangement (FAS Commonwealth)--if approved for implementation--to be easier fit to their mandate. At the moment, OIA is managing our foreign countries (FAS) as if these FAS states were domestic territories or possessions. I never understood that arrangement; our political leaders had always assumed that the FAS countries would be under the State Department; but that has not been the case--we've always been under Department of Interior since the inception of the FAS Compacts until now.

    I think that this close and tight administrative oversight will just continue into the future--and perhaps much more as OIA must oversee the management of the Compact Trust Fund. As such, the oversight of the FAS Commonwealth will essentially be similar.

    My gut feeling is that OIA will find this proposal of investing 100% of the Trust Fund into the US Long Term Government Bond a good thing, not a bad thing. It will eliminate or substantially reduce the nervousness that comes with overseeing Billions of dollars of investments--in assortment of investment vehicles such as US or International stocks (equity); high grade or junk bonds; bitcoins and cryptocurrency; emerging markets; or alternatives whether it be oil pipelines in Alaska or Apartments in India or whatever.

    By purchasing US Government Bond, the Trust Fund investment will be safe and secure. And OIA will not have to deal with all the moving and unpredictable parts.

    What I wish for is for some officials ask OIA to evaluate and provide its analysis of the proposed US FAS Commonwealth political status. Perhaps, the governments of RMI, FSM and ROP could post this question to OIA. Is this doable? Is this something that the US might be interested in? Is the idea of using the Trust Fund's income as "off-set" for a Congressional appropriation acceptable given the new rules of appropriation process.

    I remember it being reported that after Palau's amended Compact was approved by President Obama, the US Congress did not appropriate funds for Palau's Compact -- because the rule of appropriation was that any new appropriation would have to be taken from other part of the Federal Budget; in other words, to have an "off-set".

    This is why the Obama Administration directed DOI to provide the funding to Palau as per the amended Compact agreement. So that is how Palau got its annual Compact funding--out of DOI's budget--until President Trump attached the Palau's funding to the Military Budget that was approved about 2 years ago, finally.

    2. Other relevant issues and topics should be explored by our experts on the different subject areas in DC.

    This is getting too long so I'll stop here. I hope to hear from others who are in the know; who are members of the negotiation teams; who understand how these things work especially as they related to the US Congress.

  • hey marc, I understand your frustration about DOI dealing with the FAS countries and not the states dept.? well, let's face it. first off, and probably the core of the fas relationship with US is the territory access denial Right by the US and the defense obligation has made these regions become their territories therfore deal with the DOI?.. mybe im worng, just saying..
  • edited December 2018
    Marc, most Chamorros and Micronesians have moved or are moving to the USA. Why don't you move to an American indian reservation? They need intelligent people like you who value DOI's welfare programs and who can write. As for me, I will remember where we have been, where we are, and where we must go. The hopes and dreams of our forefathers who fought hard for independence, after two hundred years of colonialism, will not be easily forgotten. image
  • z, I think you have misunderstood the totality of my theoretical recommendation. In short, I like the current FAS status. Our negotiators should not do anything to undermine it.

    But my question is this: can we maintain our FAS status on one hand; and then on the other hand, negotiate with the US for additional benefits or funding--so we can buy us time to develop our economy to be self-sufficient in the future. Not by 2023 but probably 10 or 20 or more years from now.

    The basic premise underlying the Compacts is that our Micronesian nations can become totally self-sufficient economically. That was supposed to happen at the end of the first Compact about 20 years ago. And then, again, it is supposed to happen under this 2nd amended Compact--which will end on 2023. And we're far from self-sufficient goal.

    I am saying that based on our governments' well-intentioned efforts and programs and infusion of millions of dollars of development funds, we're still essentially at the gate--the way we were over 30 years ago.

    I am theorizing that the main obstacles for our small island economic self-sufficiency is our small population. We don't have enough people in the population to create a critical mass--to be producers, consumers, etc. And no matter how much efforts we will put in the future and no matter how many millions of dollars we put to agriculture, aquaculture, manufacturing, exports and other activities--they will all wither in the future simply fail because we don't have enough population to make things work--to sustain them.

    So I am suggesting that we admit to this fact. And then, look for some changes to accommodate that realization. Such as:

    1. Negotiate with the US so that we can become an FAS/Commonwealth. If this were possible, we will continue to be FAS (as per the dreams of our forefathers, don't forget that!) but at the same time, get a little bit better access to additional funds or programs. We continue to have a lot of poor people on the islands; our youth unemployment rate is probably 50%; adults and children are malnourished; etc., etc.

    2. If US says no, then, that's it. We'll continue as we operate as we are now.

    3. We can still invest our Trust Fund on US Long Government Bonds for security of the funds. We can do that without a negotiation with the US on it as any country, e.g. China and Japan, own billions or many billions of US Government Bonds.

    But in the end, if none of these ideas are approved or considered, I am happy being on the islands where life is peaceful and our hopes for future self-sufficiency will continue to be eternal.
  • Dear Marc,
    Please don't use the word "commonwealth." Four US states, including Kentucky are commonwealths. Our nation is not a foreign state. I respect your last paragraph but a negotiator mustn't be such a defeatist.

    The previous compact amendment was bound to fail. It was micromanaged by a department that primarily looks after wild animals and alcoholics in rundown "injun" reservations (federal lands). The US government keeps short leashes on indigenous natives including Micronesians. But we are not conquered or defeated warring enemies of the US government. We are not annexed subjects of a regime either. Rather, we are free islanders belonging to the asia-pacific region. We did not wage war against a warring nation that bombed the hell out of our homes, during and after the previous world war. We have remained forgiving to our apathetic invaders and nuclear testers. They promised to help rebuild these war-torn islands into thriving independent democracies. Thus far, our islands aren't restored to pre-war conditions.

    We are a sovereign country that mustn't be a dependent nation, because that would be an "Injun" nation. Native Americans considered their dilapidated reservations as sovereign nations too. Like them, Micronesians are looked down upon in U.S states and territories. We must not be complacent with racial discrimination and social inequity.

    We have much in common with Native Americans. But unlike them, we are actually sovereign. The US Navy should start leasing our millions of square miles of Pacific waters. That government gives much aid, visa, and citizenship to less friendly nations. Nations that give nothing in return. Comparatively, Micronesia gets peanuts. But Micronesia lends millions of square miles of ocean (and airspace). We have voted, served, and sacrificed too many sons and daughters for their questionable cause for democracy. We have stood by them to support the only democracy in the Middle East (Israel), when no other ally would.

    We want that lease payment to be provided with no strings attached (more like a block grant instead of the current categorical grant). The payment must be provided through the State Department as that demonstrates our true sovereignty. Anything less should require termination of the compact. We can sell use permits and operation licenses to the highest bidder. Our Chinese friends may need a bigger tub to play in. After all, there is more dignity in capitalism than in handouts.
  • z, I don't necessary disagree with many of your points. However, I feel that we're sort of talking about different dimensions of things. My pushing for the name "commonwealth" is because I think the other option--the "territory"--is more demeaning to us since we've become independent states as FAS from the beginning.

    You sound like you don't like to be a little bit closer to the US than what we are now. I think some people in Micronesia will agree with you on that. But there are also many people who would like to find ways to be a little bit more closer to the US-- but at the same time time--not lose our sovereignty, our independence, as provided for under our FAS relationship with the US.

    So, yes, it is a dilemma. I am of the opinion now that it would be good for us to move a little closer to the US than we are now. I am surprised at myself because I always thought that we could be totally independent from the US--if or when our economy is sufficiently strong and able to support our people; that we will be able to provide job opportunities to all; and also, our economy will be able to support all the government services--even after the US has pulled out its funding at the end of the first Compact; and now at the end of this Amended Compact on 2023.

    But I have come to the conclusion that that was a great dream--but it will never happen in my lifetime; not ever until the small islands nations have a population of between 200,000 to 500,000. So that will be years and years away.

    That is my conclusion. I don't believe that I feel defeated. But I believe that once I come to that conclusion, I should take stock of my old thinking; and try to espouse other possibilities--not just for me but also for my children, relatives, friends and our fellow citizens throughout Micronesia.

    So I am proposing the concept of "FAS Commonwealth of the US". It's different from the Commonwealth for A. Samoa or CNMI or Puerto Rico or other US States. But it's more like Fiji, India and other independent countries that are sovereign but have a unique friendship and relationship with Britain.

    Lastly, as for China, I think it's good to have diplomatic relationship with China but as far as political relationship somewhat like our relationship with US, sorry, that's a discussion that's for those above my grade. I like the US; I like US ways; I like the real freedom that we can feel when we go the US. I cannot say the same for China. It's a great country; a powerful one; has a communist government; etc., It's good in its own ways but I would not recommend as a place to make a living for the rest of your life.
  • Marc,
    It seems more an unnecessary conundrum than a dilemma. You wish to be closer to the USA, yet need more Micronesians to remain on these islands. An "injun" can't remain on a reservation when jobs and universities are in close-by cities. It's only common sense.

    Our founding fathers originally sought for full independence. They managed to abolish the “territory” label back in the 80's, after years of grueling negotiations. Thus, a conjecture for commonwealth status is antithetical.

    Your suggestion of a British-type commonwealth may have inadvertent consequences. The queen may send us her Girmityas, like she did Fiji. With an endless supply of Hindus, we could meet your population quota…with maybe a coup or two.

    Seriously, it seems to me you are surreptitiously advocating your nostrum. You circumvent our sovereign status for a foreign territory like the CNMI. I can no longer entertain such treasonous intents.
  • It's not nostrum; and it's not a treasonous intent. It's a simple proposal for consideration. Millions of people, including illegals, want to enter to live and work in America--to improve their lots in live. In part of Pohnpei town where I live, everyday I see parents talk to their children who are working in the states because these parents need money for cashpower (electricity), food, etc. Is it treasonous to look for ways to improve the current FAS relationship with the US?

    I cite the commonwealth model because I don't want the Micronesian FAS nations to be treated or continued to be treated as if they were a "territory"--which is the way that we are being treated now.

    Micronesian nations' political relationship with the US allows adjustments and negotiations. So negotiations of certain provisions of the Compacts for FSM and RMI as well as ROP were renegotiated--after we failed to be economically self-sufficient post the first Compact; and now, the Micronesian governments are currently involved in negotiations with US as this second/amended Compact is about to wind down by 2023. There is nothing wrong with negotiations. That's part of the process.

    My suggestion to create a commonwealth for the FAS is not really something that the US will be involved with. The FAS Commonwealth, as proposed, will be created by the 3 Micronesian governments themselves. It will be a vehicle to say that we 3 FAS countries are independent but want to continue to be linked with the US. My belief is that there is a way to get this done; so that more program funding and assistance will be able to flow to the FAS countries--above and beyond the Trust Fund.
  • marc,

    I have been following the discussion and opinions exp in this thread. I was hoping that someone would express faith in God to make the leaders and people of the F SM believe that economic independence is possible and attainable if the people of the FAM look to God for guidance and leadership. History tells us that with God all things are possible. The children is Israel were outnumbered by the Egyptians, yet, they were delivered from the bondage of Egypt. They were novices as far as battles and warfare s go, yet they conquered the bigger and mightier nations which engages them. Today, Israel though small, both in size and population are better off than most nations bigger than her and with far more natural resources.

    Within the Micronesian region, Nauru stands out as a nation with only a few tens of thousands people and really one major resource -phosphate, being able to gain economic self-sufficiency. Of course, corruption and mismanagement of its assets have taken their toll on the economy.

    I believe the F SM has many resources which, if developed and managed properly will result in a much better economy for the nation. The FSM is rich in resources in the ocean, be it fish, coral, mineral deposits and others not yet discovered. Then there is tourism and agriculture. What is necessary for the FSM is an educated and trained workforce and people in leadership positions who have faith and trust in God to guide them in their work. A few well trained and honest economists and business managers are necessary to help guide the leaders. And whatever expertise cannot be found within the citizen population, these can be contracted from the outside.

    I keep thinking about the possibility of partnering with a good university somewhere, with a strong economic and business program to help guide the development of the peop!e and the economy of the FSM. Perhaps two other universities with strong marine programs and agricultural programs can be enlisted for the same effort.

    What do you think?
  • TT, what you are saying make a lot of good sense; and I think they reflect the same kind of thoughts and aspirations and hope that FSM citizens as well as others continue to espouse. I also believe in the same things that you are saying. I just have reached a conclusion that our full economic development and self-sufficiency will be much later than we had hoped--as reflected in the results from the first compact; and now the second compact is coming to the end, and it's still the same thing.

    There are some good news for the FSM: fishing revenue in the millions of dollars; insurance scheme also in the millions of dollars; and perhaps, others. But other basic industries in agriculture, aquaculture, manufacturing seems not to go anywhere--at least at this time. Tourism and other potentials that you have listed continue to be the same--still good potential but it's not clear why they are not moving. Pohnpei had extended its runway so it can accommodate charter flights from Japan and other countries; so it's a matter of getting something done about it. My hope is that these potential industries will be developed--over time as more qualified technical and professional and entrepreneurs come into the picture. Let's hope so.

    In the meantime, 2023 is just around the corner. It's expected that there will be no more annual Compact funding but instead, the Trust Fund's annual income will be sufficient to cover the needed budgets of the respective governments. Thus it is important that we take steps to ensure that the Trust Fund is managed properly and strategically--so that the wild fluctuations in the investment market does not create too much headaches to the leadership or reduction of basic government services such as health, education, etc. Just some thoughts on this rainy day.
  • My nervousness about the future--after 2023--is whether or not, our various governments will have enough funding to continue the current level of services to the people--whether elementary and secondary education; whether all aspect of health services; maintenance of the roads; etc.

    Of course, various governments' officials, who are involved with the various investments, especially the Compact's Trust Fund, are learning how to be good in their fiduciary responsibilities--in making sure the investments are done properly and with good returns.

    But there are a couple of stories regarding financial investments that should be good lessons to remember.

    1. There was that report that for whatever reason, RMI's investment, as managed or oversighted by the DOI's OIA, was illegally accessed; that several withdrawals were made; without the OIA realizing it. Until RMI Government asked to withdraw funds for government use; and then, that's when the OIA started to ask why the RMI government was asking for funds when it had already made a couple of withdrawals in the previous several months.

    As it turned out, the RMI Government had not request for withdrawals as the OIA had assumed. It is reported that what happened is that there are at least 2 accounts: one for the Compact's Trust Fund; and the other is for another Trust Fund--probably from local funds. This second account had, for authorization purpose, signatory requirement; and it required at least two (not sure) signature by RMI Government officials.

    However, the illegal withdrawal was made because somebody was able to "fool" OIA by providing the signatures of the local government officials--which were meant only for the local Trust Fund--not for the Compact Trust Fund which only Director of OIA needed to sign off before it is being drawn.

    So it seems that somebody, used electronic communication/techniques, to obtain the signature of the RMI government officials; and in turn, somehow, were able to use those signature to access the bigger, more restricted Compact Trust Fund.

    Let me say that my comments are not necessarily 100% accurate. These are allegations. But for the purpose of this discussion, I just want to make a point that at the click of the keyboards and/or mouse, somebody can move money in and out; under our nose. And unless your system has 100% proof protection, some of these problem will not be detected until after it is too late.

    Good thing about the RMI case, is the insurance was able to cover the lost money. I don't know whether OIA had admit it's vulnerability or not. I also don't know if OIA had learned from this experience; and has taken step to prevent it from happening. I believe steps have already been taken to ensure that it does not happen again.

    (If my description of this matter is wrong, may I request "reaper" and other posters in this Forum who know more details about this matter to shed lights on it. The question: how do we protect the Compact Trust Fund from any electronic stealing or such bad action--after 2023?

    2. The history of Puerto Rico's debt situation is something that is well known and is available for all to read. It seemed the government started to lose a lot of revenue after their special exempt tax status was rescinded. The leadership, instead of adjusting the budget, went on to borrow money to sustain the budget by selling bonds.

    As the debt mounted and it became clear that PR government would default in its bond obligations, the investment value of the Bonds started to tank. AS a result, the Puerto Rico government became considered as "junk bond"--thus it lost its values in the millions. The banks and other bond packagers arranged for more debt (bonds) for Puerto Rico's government--until debts were in the hundreds of millions. The Banks--some of the big names in Wall Street--were able to recover some of their initial investments by issuing more Bonds on behalf of the Puerto Rico Government. One of the last batches of the government bonds they sold the "junk bonds" to retirement fund, endowment funds, etc.,

    Because they were considered "junk bond", such bonds were offering higher rate than regular bonds. In the end, the investors for the Puerto Rico's bonds lost their investments; and the bonds are continued to be considered "junk"; literally are not worth very much. And then came that big storm. Generators and a lot of government infrastructures were already in bad condition due to lack of government's money to maintain them. And many other problems for PR because of overbudget; and because they depended on debts in the form of bond issuance.

    Wall Street banks and the bond packagers can be helpful but they are also there to make money for their shareholders and also their employees; so it's good to be careful when we look for help from these kinds of players in the international investment markets. Scary thoughts as we look to 2023 and beyond.

  • I will stop--for now-- my posting on the FAS commonwealth that I have been proposing. I will try to do my own research on some of the following related subject matters; and get back with my findings--whether yes or no in the near future:

    1. I will try to get a sense from OIA officials or staff--whether they would object to this proposal; will they find it beneficial or not in light of experience with JEMCO, etc.
    2. I will contact the key staff of the US Congress appropriation committees--to learn more about the latest rules about new appropriations;
    3. I will contact experts in investment strategies--to get performance data on the fluctuations on investments on different instruments/strategies such as: on stock investments, private fixed income funds, investment in alternatives, investment in emerging markets, etc., in the last 15 years;
    4. I will get the coupon rate for different US Government Long-Term Bonds;
    5. I will get a copy of the organizational structure and document for the 63 (or so) independent countries which are members of the Commonwealth organization that is linked to Britain;
    6. I will read more on organizational theories about the character and behavior of large organizations that will be made by impossible parts and independent small islands nations such as the FAS countries in Micronesia;
    7. I will try to determine how other Micronesia-based organizations are doing based on the their experiences in the past many years in working together such as: Micronesia Shipping Commission; Micronesia Chief Executive Conferences; the new Micronesia Island Forum (like PIF); College of Micronesia Treaty; and others. Just my thoughts on this nice day.
  • So, I had said that I would stop posting for a while. However, the US financial market is in turmoil today; so I just wanted to say something about it.

    The Federal Reserve Board had decided to increase the official interest rate. The stock market and investors don't like it; so a lot of selling have been happening; so they are the reason the indictors such as Dow Jones are down. With the increase in the official interest rate, it means it's a little bit more expensive to get loans for cars, houses and also business expansion and other purchases.

    On the other hand, the investors will see increase in their bank deposits, CD, etc. I think, but not 10% sure, the next batch or issuance of Long Term US Government Bond will also show higher interest rate. So I'll report on it as soon as the data is available.

    In the meantime, any investment in stocks (equities) are down--and down badly. Of course, they will always recover. The US economy is doing well; so the stocks will bounce back--as the investors sold while the equities values were coming down; but also other people will get in the market to buy stocks--which will bring the stock values back sometimes in the future.

    So this is the type of fluctuation that we need to think about. I wonder how much in the millions were lost this morning from our Micronesian governments investments in social security, trust fund, etc. It'll be temporary but it'll be interesting to do some analysis and present it in my next post.
  • I am glad it is only a theory. But a very good throw back entertainment between the insane and the sane. Commonwealth is a hopeless dream. I would rather poor and happy rather than counting pennies to buy my happiness in the proposed uncommon commonwealth.
  • You're right in your ambivalence about the theory (proposal) between sane and insane. I would never have thought in a million years--back when the FAS relationship was being negotiated--that our small Micronesian islands would never become economically self-sufficient--in my lifetime.

    If I understand it correctly, this (economic self-sufficiency) was the principal premise, that was assumed and espoused by both the US side as well as the Micronesian's side--ROP, FSM and RMI. It was a dream. The talk of the day--the assumption--was that if we became economically self-sufficient at the end of the first Compact, we would eventually do need financial assistance from the US; that our people will be prosperous in their lives in the islands; that there would be no incentive to migrate to the US.

    So that was then. Now, our nations are coming the end of the another 25 year, second (amended) Compact; and we're still far from being economically independent. We requested the second Compact amendment because our nations were also far from being economically independent after the first Compact.

    I am proposing a set-up that will bring us a little bit closer to the US than we are now. My ultimate hope is that by being closer to the US, we will be able to get eligibility for some basic federal programs for our poor and destitute people. Things like Food Assistance for Elderly; Lunch Program for Elementary Students. I point out these two because these are some of the reasons that a lot of our fellow Micronesian are migrating to the states (Guam, CNMI, Hawaii and mainland states): so the elderly can have access to health care and basic and nutritious meals; that students will be able to go to school without being hungry.

    Take the case in Pohnpei. There are elementary school students who walk down from the mountain everyday, crossing rivers and streams in order to go to school. Often times, they don't bring lunch; so they just stay at school with empty stomach all day until the school is over. Imagine this scenario a couple of thousands times--students who don't eat lunch. It's sad. The governments cannot do anything about it. No money for school lunch, etc.

    But most important thing for me is this: now that we have a Compact Trust Fund, how can we ensure that we will have a guaranteed stream of income that the respective governments can count on it from year to year--for basic government services such as education, health, road maintenance, police/security, etc.

    As I have suggested, the FSM, for example, would put its whole Trust Fund in secure bond that guarantees annual payout based on the coupon rate. I am suggesting that we buy long-term US Government bond with the whole Compact Trust Fund.

    If we can lock-in a coupon annual rate of about 3.5 to 4%, the annual interest income will be able to provide the basic block for the government budget--that can be counted on every year. Given the nature of the economy--where the Fed is trying to increase its rate-it might be possible for the rate to go beyond 4%.

    The governments will use their other Trust Fund to invest in stocks or other investment instruments to gamble for bigger rate of return--which can go to 7% or more in one year; or can drop to 0% or even less the next year.

    Yes, its is considered a theory but don't forget that even the FAS concept as applied to Micronesia was a theory--borrowed from the New Zealand model. It does not hurt to check out other options; to refine and improve and enhance our relationship with the US. And this theory--this proposed model--is just one possibility. Just my thoughts.
  • marc, how can you have commonwealth and independence facing each other? That is the issue. Your narrative is great but far too late. Commonwealth was voted down and I do not believe Pohnpeian kids are starving in school as Phnpei is the garden island in the FSM. Lots of traditional food. Who needs rice and mackerel soup for lunch? That will contribute to the declining performance in school as they are not food for the brain.

    You sound like an economist not too rooted in reality.
  • So the "commonwealth" that I am suggesting would be similar to what is known as the British Commonwealth. It is an "intergovernmental organization"; not a political structure like A. Samoa or CNMI. You can google the "British Commonwealth" to understand how it is organized.

    There are 53 countries who are members--they voluntarily joined the commonwealth as in free-association with each other as independent countries as well as with Britain. Member countries include: Australia, Bangladesh, Barbados, Belize, Brunei, Botswana, Cameron, Canada, Fiji, India, Jamaica, Kenya, Kiribati, Malaysia, Nauru, New Zealand, Nigeria and others.

    I believe they have a Commonwealth Charter that outlines the principles that they espouse, including, human rights, etc., etc. It is operating like a UN with each member having a one vote per country regardless of population or economy.

    So that is the commonwealth structure I am beginning to envision--an intergovernmental organization--whose members will be ROP, FSM and RMI. It will not be difficult to set up its Charter to adopt the same democratic principles that we have learned from the US; as well as from our membership in the different international organizations such as the UN, etc.

    We can put a lot of focus on climate change, the sea-level rise, the difficulties of small state's economic development, etc. We can put the current Micronesian Shipping Commission as well as the College of Micronesia Treaty and other such existing intergovernmental relationships under its roof. We can have a Secretariat as well as other organizations to focus on different issues the 3 governments would choose to address, etc.

    In short, I am not talking about political structure like A. Samoa or CNMI or Puerto Rico. I also am not talking about being a "Territory" which I find demeaning given the fact that we, the three FAS nations, are fully independent countries.

    In summary, I would think that once this international government organization is organized, it'll be easy for the group to set up a lobbying arm within the Secretariat--to work with the US Government--so that we can move our FAS relationship as spelled in the Compacts a little bit closer to the US than what it is now. We don't want to sacrifice our independence. But we also want to recognize the fact that we are linked to the US. We're managed by Department of Interior's Office of Insular Affairs. And I believe it will be like that for as long the Compacts are in place.

    One provision of the agreements for post 2023 is that the Compact's Trust Fund must reside or be located in the US. With this and other restrictions in mind, we might as well take advantage of our being required to be closer to the US as evidenced by the OIA's oversight--not oversight from the State Department as we had expected from the beginning.

    If this proposal works out, we will be a better position to have the US provide us legislative vehicles and authorization opportunities to submit our appropriation requests to the US Congress. That is my thinking. That is my hope. Not for me personally. I have enough means to live on; and can always move to the US to find easier and more prosperous life. But what about our elderlies and elementary school children who will be left behind. We should take steps to look for a better future for them also--as long as they choose to stay back in the islands. Just my take on a complex but doable approach--I think.
  • marc, structurally sound but politically almost impossible. The current arrangement is satisfactory and would not like to move in close orbit with the USA. The British Commonwealth model is a remnant of the colonial past if you look at the membership list and France has the same but called it differently. Free Association is fine but just negotiate some of the provisions rather than create a whole structure that will clash with what we already have which would undermining our independence. That is my belief.
  • So I'll focus on your last sentence. Actually, the creation of this "intergovernmental organization"--that I call "Commonwealth of FAS"-- does not involve any negotiation with the US. It does not involve any amendment to the current or future COFA's. No need to change anything. I agree we don't want to create any situation that would "clash with what we already have which would undermine our independence" as you say. I agree 100%.

    So this is how I see it happening, under one of the possible many scenarios: sometimes between January 2019 and 2023, the 3 FAS governments, during one of their annual regional meetings, which at times involve Guam and CNMI, will hold a side meeting about this concept.

    Or, better yet, during the next Micronesia Island Forum, which is an adaptation of the Pacific Island Forum, the 3 governments can introduce this discussion in its agenda. The 3 governments can set up a working/discussion group--at the ministerial level--to discuss and evaluate this commonwealth concept.

    The working group can evaluate a possible charter for the group. It can evaluate setting up a Secretariat. It can agree to set up a Secretariat office in one of the FAS capitals or even Guam if needed. Most importantly, it can adopt a basic operating charter that specifies the contribution from each of the 3 member states; budget for a small Secretariat; agree to some basic organizational structure; and identify a couple of projects that the Secretariat can undertake.

    All of these can be done--the creation of this intergovernmental organization can be initiated--without any input from the US. There is nothing to negotiate with the US about; so there is no need to involve the US side.

    However, at some point in time, it is anticipated that the US will be invited to join the meeting of the "commonwealth of FAS" meeting as an "observer". And after that, the Heads of States--the Presidents of the 3 FAS countries will decide what actions to take in order to move our relationship more closer to the US--that is, if that is what the Heads of State decide.

    Remember that each FAS country is a full and sovereign country. Each can have bilateral relationship with any countries in the world; as well as multilateral ones as each of the FAS countries may decide. It can operate like the European Union also.

    Finally, I think there is no need to set up a timeline for the creation of this organization. It can happen before, during or after 2023.

    But the benefit for beginning some discussions on it now--is to say to the US that we treasure our independence under our FAS status but at the same time, we are looking for a more stable relationship with the US and for the stability of the region. Or, something like that. Just some ideas; don't know if they make sense or not. We'll see.
  • I am focusing on the stability of the region--also of our relationship with the US--because after 2023, there will be no regular annual allocation of Compact funds to FAS. This was agreed to by design.

    After 2023, the 3 FAS countries are expected to fund their government budgets using the Compact Trust Fund which the US has been contributing to as part of the current amended Compact which will end by 2023.

    So there will be less scrutiny or oversight from the OIA. It's not clear if there will still be the other oversight mechanisms such as JEMCO or JEMFAC As one may recall, JEMCO had 3 members: 2 representing the US; and 1 representing FSM. So, of course, if the 2 representing the US said "no", then whatever that FSM side requested would not be approved. I heard the same set up existed for JEMFAC.

    So I think after 2023, if these oversight mechanisms are not present anymore, the US as well as our Micronesian side will be always on their toes--worried that something might happen to the Trust Fund or to other things. Anyways, it's one of the reasons that we need to assure the US as well as us--the 3 FAS countries--that we will do whatever we can to be stable and will be able to operate using the Compacts' interest incomes from investments as proposed. Just some thoughts on this nice January 1, 2019 as the day is coming to a close here in Pohnpei with a lot of cars full of kids making noise as they drive around in town.
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