President Panuelo Visits the White House, Brokers Top-line Deal; FSM Planning to Receive $2.8 Billion Over 20 Years in Compact Sector Grants, $500 Million Injection to Existing $1 Billion Compact Trust Fund Projected to Reach $4 Billion in 20 Years, Removal of Fiscal Cliff, & Continuation of Federal Programs & Services

PALIKIR, Pohnpei—In late January 2023, His Excellency David W. Panuelo—President of the Federated States of Micronesia (FSM)—visited Washington, D.C., and high-level officials at the U.S. White House, so as to strengthen diplomatic ties and conclude discussions and make decisions on the Nation’s top-level figures for economic assistance for the next iteration or extension of the Title II provisions of the Compact of Free Association. Over several meetings with senior White House officials, including Dr. Kurt Campbell, National Security Council Coordinator for the Indo-Pacific, Ambassador Joseph Y. Yun, Special Presidential Envoy for Compact Negotiations, and Ambassador Carmen G. Cantor, Assistant Secretary for Insular & International Affairs, President Panuelo presented the FSM’s position for the extension and modification of economic assistance under the Compact, advocated the FSM’s rationale for its position, and confirmed with the White House team their broad agreement on top-line figures for annual sector grant assistance, injections into the Compact Trust Fund, continuation of U.S. Federal Programs & Services, and a provision in an agreement regarding the continuation of direct economic assistance beyond Fiscal Year 2044 on similar favorable terms.


President Panuelo’s objective during his trip to Washington, D.C., was to secure top-line figures for economic assistance to the FSM so that the U.S. Executive Branch can include the FSM’s figures in its submission of its annual budget to the U.S. Congress. This is not a trivial matter; the U.S. President’s budget is submitted in early February, and not having these figures secured would mean delaying the FSM’s movement on Compact-related issues for another year at best. While the Republic of Palau and the Republic of the Marshall Islands currently possess Memorandums of Understanding (MOUs) with the United States Government, the FSM had not yet reached that point. President Panuelo was, and remains, monomaniacally concerned (i.e., singularly focused or obsessed) about ensuring the Nation’s continued wellbeing and future and strengthening the FSM-U.S. Enduring Partnership in a manner that genuinely benefits both countries.


“When I reflect on this administration and the vast responsibility of the Office of the President, I told myself,” President Panuelo said in a statement, “That, given the narrowing window on this, I must take decisive action for our people. I am willing to put it all on the line—and to risk my political career by taking bold action, focusing on my duty and the long-term impacts to our people—in order to secure a deal that is fundamentally in our Nation’s best interests, and the best interests of our citizens.”


Contemporary Sector Grant assistance under the Compact of Free Association is approximately $80,000,000 per year to the FSM, and is increased to approximately $93,000,000 per year if one includes the Supplemental Education Grant (SEG), which is technically an annual act of the U.S. Congress as opposed to funding secured through the treaty. President Panuelo successfully secured from the White House team their concurrence to seek to request from the U.S. Congress $140,000,000 per year in Sector Grant assistance, or a total of $2.8 Billion over a twenty-year period.


As the FSM’s Compact Sector Grant funding resides within the FSM’s States, and not at the FSM National Government, one of the impacts of such an increase in funding would be a dramatic jump in financial support to the Yap State Government, the Chuuk State Government, the Pohnpei State Government, and the Kosrae State Government. “This is one of the ways that teachers get their salary increases so that we can retain talent and strike back at our 2% annual out-migration rate by improving student learning opportunities at home,” President Panuelo said, “And this is how we can provide better pay to doctors and nurses employed at the state level, all while better supplying our public education and health infrastructure throughout the Nation.”


Additionally, the President and the White House team agreed that they plan to include in an agreement a provision regarding the continuation of direct economic assistance beyond Fiscal Year 2044 on favorable terms, subject to mutual agreement. “In other words,” President Panuelo said, “There will not be a fiscal cliff now or in the future. Virtually everyone had the year 2023 as a weight on their shoulders, whether they were adults or children. We aim to remove that barrier for 2044 and beyond. The Compact, like our Partnership with the United States, is Enduring.”


President Panuelo articulated the FSM’s intention to continue and maintain the provision of U.S. Federal Programs and Services currently provided to the FSM. The President and the White House team agreed that they intend to continue and maintain in a new agreement the provision of U.S. Federal Programs and Services that are currently provided under the Federal Programs & Services Agreement. While it is beyond the scope of this release to quantify this assistance, it is the view of the FSM Government’s Executive Branch that this assistance is arguably as significant, if not more significant, than annual Sector Grant assistance. “Whether it’s PELL Grants or FAA regulations or the Post Office, the continuation of essential programs and services will make a key difference for our Nation’s future,” the President said.


Of supreme importance to the FSM Government’s long-term objectives include the health of the FSM’s Compact Trust Fund. The FSM Government projects that it is increasingly plausible that the Compact Trust Fund’s dividends may, at some point in coming decades, serve as the Nation’s primary source of revenue from which to fund essential programming and services to the Nation’s citizens. “From Climate Change resulting in the migration of tuna from the FSM’s oceanic territory to other countries, to the unknown geopolitical scenarios in coming decades—and the problems we’ve identified, such as out-migration, to the problems we’re less able to quantify, such as low literacy and mathematics scores, having a stable and secure source of revenue will be essential to our Nation’s prosperity. We have seen other Pacific Islands and other countries enjoy being wealthy today only to become poor tomorrow—and the impact that has on families and communities. It is in our strategic interest to ensure that, no matter what the future brings, we can collectively, and always, count on the Trust Fund to be a source of revenue for our people.”


Thus, President Panuelo secured from the White House team their agreement that the U.S. will intend to request a mandatory appropriation for annual installments of $250 Million to be deposited into the Trust Fund for the People of the Federated States of Micronesia for two years, beginning in Fiscal Year 2024, for a total of $500 Million invested in the first two years of a new agreement. This will help ensure the FSM reaches its financial goals for 2044 and beyond, and the Trust Fund is conservatively projected to reach a total value of $4 Billion or above by 2044.


Immediately after the meetings with the White House team—late at night in his hotel room—President Panuelo urgently called the Honorable Wesley W. Simina, Speaker of the FSM Congress, so as to brief him on the conversations, and to solicit his views. After receiving the Speaker’s total support, President Panuelo sought to engage with the Honorable Isaac V. Figir, Chair of the Congressional Committee on Ways & Means, among other members of the Joint Committee on Compact Review & Planning (JCRP), who also advised of his total support for the President’s engagements with the United States. As of this release, President Panuelo has concluded his briefing with Asterio R. Takesy, Chair of the JCRP, and Leo A. Falcam Jr., Chief Negotiator, on the FSM’s next steps forward, such as signing a Memorandum of Understanding (MOU) in early to mid-February.


At the time of this release, the FSM has not yet signed an MOU with the US Government—though it is the FSM Government’s understanding that the topline funding for the Compact is secured for the purposes of the U.S. President’s budget submission to the U.S. Congress. It is President Panuelo’s intention to determine a date in the coming weeks for signing the MOU with the U.S., and for the FSM-side to dedicate the month of February and the beginning of March towards finalizing the few remaining elements of the negotiations, such as the Fiscal Procedures Agreement. President Panuelo intends to ensure the total conclusion of the entire negotiation process, inclusive of signing a completed agreement, before the end of administration on May 11th, 2023.


“In the first ten days of my administration I went to Washington D.C.,” President Panuelo said. “The result of that visit at the beginning of my administration was to get the greenlight to start the Compact negotiations. I promised every citizen in this country that we would start that process—and it is my responsibility as your public servant, as your President, to see to it a successful conclusion. That is what we have accomplished in Washington D.C. at the end of January, achieving an estimated combined $7 Billion in programs and resources from Sector Grants and Trust Fund gains, not even counting all Federal Programs & Services, over the 20 years period; focusing on finishing this important work will remain my priority so that the next administration—regardless of who they are—will know that the Compact is secured for our Nation’s prosperity. This is about taking actions today for our Nation’s prosperity tomorrow.”