New Fiscal Procedure Agreement Not Convoluted, Nor Onerous, says CNO

Checks and balances placed on Compact funding are no more onerous (in fact less onerous) than other types of grant assistance by the U.S. Government, said Robert Muller, who has been serving as the Executive Director the Republic of the Marshall Islands Compact Negotiation Office. "Compact funding is based on rules and regulations that apply to U.S. grants in the states and its territories but tailored to the RMI capacity to implement these procedures. At the end of the day, we must realize that grant assistance by any means is not without accountability," he said.

Muller said he was disappointed with Yokwe Online's characterization of the amended Compact fiscal procedures as "convoluted." (Read Agreement Reveals Convoluted Terms and Conditions to Get Money.) According to Muller, the amended provisions of the fiscal procedures agreement are no more restrictive than current RMI law. Although the Joint Economic Review Board Management and Financial Accountability Committee (JEMPAC) will meet and approve annual grant assistance allocations, it will be up to the RMI Government to determine how the monies are spent based on its Medium Term Budget and Investment Framework and its priorities, he said. "Aside from anything else, I would suggest that this is main goal and objective of Compact grant assistance -- to have a positive impact for our people," said Muller. In the following statement, Muller outlined the roles of the JEMPAC and the FPA. "Specifically, it's worth considering the following issues to put the Compact fiscal procedures in perspective," he said.

1. The U.S. had some controls and inputs over the course of the first period of economic assistance even though it chose not to use them. Examples are the requirement of U.S. concurrence to the RMI development plans in Section 211(b). The U.S. has also had the right to withhold or suspend Compact funds under the current Compact. If the RMI Government had failed to pay the Kwajalein landowners under the terms of the LUA, the U.S. could have suspended its obligations to the RMI. There are other grounds that the U.S. could have withheld Section 211 funding under the current Compact even though the funding was characterized as "full faith and credit". Section 105 of the Compact Act provides for non-compliance sanctions under the current Compact. It may be the U.S. has not seen fit to invoke its authority over the course of the last 17 years, but that doesn't mean that they lacked that authority.

2. The role of JEMFAC in approving annual grant assistance allocations. Simply put, this is not like the TT since it takes the agreement of both the RMI and U.S. for the allocation of grant assistance. The U.S. cannot unilaterally allocate Compact funds.

3. The role of the Nitijela vis-a-vis the amended FPA. It is anticipated that the Nitijela would approve its budgets in the same manner that has always been done. The U.S. has no input in respect to domestic revenues. Anticipated procedure would be that the JEMFAC would meet and agree on Compact funding allocation. This agreement would be embodied in the annual Appropriation Act along with other items that would be submitted to Nitijela. In the event that substantive changes were made to Compact funding allocations in Nitijela, it would mean that only for portion where changes have been made the process would need to go back to the JEMFAC for ratification.

4. The previous Title Two imposed strict and unchangeable restrictions on the use of a good portion of the grant funds at set amounts. The previous section 214 (energy); section 215 (communications); section 216 (maritime surveillance and scholarships) are examples. The use of these funds could not be changed unless the Compact itself was amended. In addition, section 211 funding was required to be allocated with no less than 40% being dedicated to capital account funding.

5. The amended Title Two gives much greater responsibility to the RMI Government to determine the allocation of annual grant assistance based on its Medium Term Budget and Investment Framework. The dollar amounts are not arbitrarily attached and imposed for any sector, rather it is up to the RMI Government to determine its priorities. Also, the RMI will have greater flexibility in determining funds used for infrastructure development. The amended Title Two allows the Government to allocate between 30-50% of its grant funding for public infrastructure. For these reasons, the amended Title Two doesn't infringe on our national budget process any less than the previous Title Two grant assistance as it allows our government greater flexibility to choose its priorities. The major condition that goes with this is accountability and responsibility as to how the funds are spent. We cannot pass a budget saying that we will do one thing and then do something else.

6. In many ways the amended provisions of the fiscal procedures agreement are no more restrictive than current RMI law. The Marshall Islands Financial Management Act, Title 11, MIRC, Chapter 8A is a good example which requires that budgets contain performance indicators; strict records retention requirements; financial records requirements and a number of other things very similar to the amended FPA. The same is true of the Marshall Islands Procurement Code, Title 44 MIRC, Chapter 1. This RMI law Marshall Islands contains even more restrictive requirements than the Compact FPA. Much of what is in current RMI law could simply replace the many of the provisions of the FPA. How can we say that FPA is now intrusive and onerous but basically provides for substantially similar measures that are presently part of RMI law?

7. The argument that we lose our flexibility under the amended FPA doesn't hold either as there is allowance for budget changes of up to 15% of a grant or $500,000 whichever is less, (within a sector). These provisions could also be invoked if Nitijela made some changes or adjustments to the decisions of the JEMFAC so that the allocation of Compact grant assistance would not need to go back to the JEMFAC for ratification.

8. Finally, it important to look at this arrangement as making sure that our partner in this exercise, the U.S. Government, is kept engaged and interested in the economic development of the RMI. If we are to maintain the special relationship under the Compact, we have to engage the U.S. Government at a high enough level above the bureaucracy that deals with the RMI on a day-to-day basis.

Muller said that the JEMFAC provides such a mechanism as it was made evident at the recent provisional JEMFAC -- the U.S. representatives were the Deputy Assistant Secretary of State, the Deputy Assistant Secretary of Interior, and the Special Assistant to the Secretary of Health and Human Services. The questions asked of RMI officials were not in the nature of dictating or micromanaging how the RMI intends to use the money, he said. They asked the RMI about what we saw as the positive impact of our allocations of grant assistance on the people of the Marshall Islands, and the discussions focused on establishing baseline data in the key sectors of health and education in order better gauge the impact of Compact funding next year," he related.

"JEMFAC also provides us a forum to coordinate and better target U.S. technical assistance, which have been applied at best on an ad hoc basis over the years," Muller said.

-- Compiled by Aenet Rowa, Yokwe Online

Based on Robert Muller's response of October 2, 2003 to the Yokwe Online Fiscal Procedures Agreement post