The Federated States of MICRONESIA
Wider horizons for paradise islands

Like stars in the night sky, the islands of the Federated States of Micronesia (FSM) are dotted across a huge swathe of the western Pacific Ocean. Formerly part of a US Trust Territory, they achieved independence in 1979, uniting the four states of Chuuk, Kosrae,
Pohnpei and Yap. Their total population is little more than 110,000.
The FSM maintains a special relationship with Washington. The US dollar is used as the national currency, and the country has benefited from hundreds of millions of dollars in US grants through what is known as the Compact of Free Association. The economic assistance provisions of the agreement ended formally last year, though a two-year extension is in force while negotiations are in progress on a renewed economic assistance package.

Leo A. Falcam
‘Environmental preservation is biggest concern’
Leo A. Falcam

Reducing the size of the public sector and boosting the private sector are central to the economic reforms. As FSM president Leo A. Falcam explains: “We recently entered into a four-year sector development programme – with assistance from the Asian Development Bank (ADB) – that will address some of the institutional and legal constraints that in the past made it difficult for the private sector to grow.”

For much of the past 15 years, GDP growth has hovered around two per cent annually. But the President says he is optimistic about the potential for growth in tourism, small
businesses and fishing. Because of the 200-mile exclusive economic zone around the islands’ shores, over a million square miles of ocean come under the FSM’s control.
The seabed may also have an as yet unexploited potential. “However, the mineral resources have not been fully explored, to really determine what is there, and whether it is of such an abundance to make it commercially viable,” says Mr Falcam. “Both the technology and the exploration itself to determine what is available and abundant are very expensive and way beyond our limited resources.”

Tourism has as yet been only partially developed, largely out of a concern to protect the indigenous culture and the environment. “As a small island nation, our biggest concern is the preservation of our environment for this and future generations of Micronesians to enjoy and prosper in,” the President says.
Environmental protection is part of a reform programme that also includes a leaner, more efficient government, and access to capital resources to encourage the growth and vitality of the private sector.

Government-owned fishing enterprises are prime candidates for privatisation. “We are working closely with our partners in the four states to move this process forward,” Mr Falcam says. “We are also looking closely at telecommunications and public utilities.”
The government will continue to play its part in development, by making it easier to obtain business licences, improving schools and health facilities, strengthening
inter-island sea transportation and encouraging access to funds from banks to invest in the economy.

Regarding foreign investment, Mr Falcam recognises that more needs to be done to provide a better legal environment and a range of incentives. “The four-year development programme supported by the ADB addresses this and other critical issues that will encourage new investments, including joint ventures, not only from foreign sources but within and between our four states as well,” he says.

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